The DAC in the E17 is used on the E17/E9 combo if you connect your source via USB into the back of the E9 or Optical/Coax on top of the E17. This can't be done with an iPod or iPhone, unfortunately. You can only bypass the internal amp and not the DAC on the iPod or iPhone, and that is done by using a LOD. On the iPad, you can bypass the internal DAC by using a powered USB hub and a Camera Connection Kit (CCK). However, I've been experiencing distortion (or better described as a crackling noise) when using the FLAC Player app on my hi-res FLAC files. I'm working with Dan Leehr on hopefully correcting this. The normal "iPod" interface on the iPad works fine however, and makes my ALAC files sound wonderful!! When using a USB or SPDIF connection, the combo uses the E17 for the DAC and E9 for amp - or if you switch the bypass switch on the side of the E17 you can dual amp the signal using both the E9 and E17, which also allows you to use the EQ functions on the E17.
For your iPhone, your best set up is probably using the L3 (which I believe is the higher quality LOD of the ones you have) and plugging it into the back of the E9. I believe you can then move the switch on the E17 so you're using the amp in it as well. I can't remember which way you have to have it switched to get it to use the amp on the E17. If you hear a difference from changing any of the EQ settings, you know you've got it set correctly.
I'm going to make an assumption here. Since you have an iPhone, you probably have a computer with iTunes. If so, this is where you can make your E17/E9 combo shine. Maybe not so much with iTunes, but with your computer. To do so, I suggest downloading Foobar and some hi-res tracks from a reputable source such as HDTracks. Connect your computer to the E17/E9 combo via USB or better yet SPDIF if you have it, and enjoy your music like never before! You can also enjoy your (hopefully) ALAC files in iTunes this way. This would probably be the equivalent of playing the music on your iPhone if you could indeed bypass its internal DAC. Unfortunately, this isn't very portable, but neither is the E17/E9 combo...
I hope this helps and answers your questions.