Yeah sorry, I wasn't clear on that. The iPod 5/5.5th gen both support line out, but for some reason you can still see the digital volume bar on the device (normally you can't adjust/see the digital volume). In Rockbox, the digital volume actually does change the volume level, but in the iPod operating system the volume changing doesn't do anything.
I don't believe there is any way to bypass the internal DAC of the iPod [Classic] series unless you buy an expensive (typically $500+ USD) "Apple certified" DAC unfortunately.
FWIW, I have Rockbox on my 6th (some say 7th) gen 160 GB iPod Classic, and with Line Out enabled, the wheel will "adjust" the volume (the indicator changes), but it does not affect the volume. Gotta use the C5 to change it, as it should be. Can't speak to Rockbox on other iPods/devices.