I've owned K701s, and I own an iPod, yet I never used the two together...BUT, I have used my iPod as a source for my speaker setup using the iPod dock and 192 kb/s rip rate and it sounds just fine.
I'm dying to know what store you went to (you can PM me if you don't want to bash the person here). I live in Harvard Square, and I believe I know the guy wang228 is discussing...
As a side story about New England brick and mortar stores (you can skip if you want...this will be long...but I've been wanting to tell this story for awhile), my friend and I actually got thrown out of a certain hi-fi shop on the Berlin Turnpike in Connecticut when my friend was shopping for a pair of speakers and a pre-amp. He had already gotten a steal on a used NAD power amp from about 5-10 years ago, and the salesman (owner I believe...hereinafter referred to as "the salesguy") told him that he'd have to "get rid of it" and get something better if he wanted good sound (such as one of the newer NAD models that he was, of course, selling). He was a being a total a** about how he said it, and my friend told him he didn't think enough had changed in technology in power amps for in the last decade for him to make the purchase. This pissed off the salesguy, who asked, "What, do you want me to talk about circuit topology?" My friend said, "sure" (since he actually understands that stuff...I sure don't) and that's when the 'guy started getting really angry and said "I'm gonna have to ask you to leave." As we were getting escorted out, he said to me (paraphrased) "Your friend's a ______ (can't recall) but you're okay" and patted me on the back (he knew I'd bought from him before and had recommended the place to my friend, and was probably trying to salvage a customer...just doing it poorly). All I could say was, "Um...but you're throwing out my friend..." He obviously wasn't up for discussing (or wasn't able to discuss) circuit topology that day. He got a "uh...happy holidays" from me (it was last xmas) and my friend got a complimentary "Go screw yourself." All of that, for asking a guy to explain why he should buy something recommended by him! My friend wasn't even being rude...just asking for the guy to tell him something beyond "um, it's newer so it's better."
We ended up driving to Northampton, MA where the people at the hi-fi shop there were much more courteous, not full of themselves, and sold my friend a decent pre-amp and some B&W speakers. I've since bought from them. The guy in CT only lost out on about $2000 in sales from my friend, but he totally lost out on a repeat customer. My friend is hard working enough and smart enough to have a job that gives him a good amount of disposable income at a young age (I'd be jealous if he didn't totally deserve it), and he's just now getting into audio. He will definitely be making more purchases in the future. What is more, my friend's father has the same workaholic tendencies, more disposable income, and is the source of his son's new audiophile tendencies. The salesguy a** has lost out on his business as well. My friend can't afford (at the moment) the audio equipment that the salesguy would rather spend his time selling (as opposed to mid-fi/entry-hi-fi); however, my friend's father can. He certainly won't be recommended to any of my friend or his father's business associates or friends either after this.
I certainly don't have the kind of money to spend that my friend or his father have (though I'm fortunate to have an enjoyable audio rig right now), but I will continue to upgrade my equipment in this hobby (of course) and will NEVER set foot in that shop again, even though there are only so many hi-fi shops in New England. I will never recommend it to anyone, and if someone even mentions hi-fi to me in person, I will go out of my way to tell them not to go there.
Point being...if anyone reading this is a hi-fi shop owner, if someone wants to buy something in your store, don't be an a**. Why waste a sale completely on such sales "tactics"? Even if amps have changed in the last decade (I don't know, and I've heard debates on both sides now), why act like that?
As this thread shows, it's obviously not limited to the one guy my friend dealt with. Funny thing is, the guy in Harvard Square that wang228 may be talking about actually told my friend there was nothing wrong with the NAD power amp he had when my friend checked in to see what he was selling and chatted with him for awhile without pushing a sale.
Sorry...that's a long post, but hopefully someone found it amusing/enlightening (I'd love it if the guy from CT was reading it...)...I've been wanting to post that for awhile!