I know that many Head-Fiers are either in college or have at least driven past one. One of the things that they teach in a college/university is the value of research, and a lot of the confusion around the various iPods arises from folk blazing into a forum with zero research behind them. I am a long way from being an authority on the iPod, so I will refer you to two very comprehensive sources:iPod - Wikipedia, the free encyclopediaMac Buyer's Guide: Know When to Buy Your Mac, iPod or iPhone
(and another for the iPhone: iPhone - Wikipedia, the free encyclopedia
The reason I include the iPhone is that many claim that the iPhone 3GS has the best SQ of any portable device ever released by Apple. Others make the same claim of the current Touch, and I personally consider my 6th Generation
160GB Classic to be the best sounding iPod I've ever heard. If you have a 7th Generation iPod, you must work in R&D at Apple Corp. The 6th Gen Classic was released early September 2009 - if there has been a subsequent release in the month since, it slipped by me.
I *suspect* that the current Shuffle has the same DAC used by the aforementioned releases of the Touch, iPhone and Classic, and that $1.15 chip is supplied by a company called Cirrus Logic. For those of us who have come to associate the name 'Wolfson' with high quality DACs in things like CD players, it seems incomprehensible that switching to a DAC from another company could improve SQ so markedly, and I suspect that the Apple engineers have done some serious tweaking, but whatever it is, I like it. Many have a counter view, and blame their perception on the new chip - all I can say is that you need to take your IEMs into an Apple Centre and audition one or more of the new players or the iPhone. I cant tell you whether the new models sound better than your old 160GB Classic, but I would be willing to bet that they sound better than any Nano you've ever heard.
Feel free to disregard all of the above as the rantings of a Sony fanboy, but *please* do a little research beyond Head-Fi.