In my experience, sound quality was a pretty big leap. I'm not saying the ipod is awful because for the size it sounds pretty good. But in summary, the X5ii has better bass, treble, mids and soundstage (not overly familiar yet with all the other terms used to describe sound). Overall, difference in SQ with the nano was very noticeable (headphones I used were the Vsonic gr07 classic, sennheiser momentum and philips fidelio x2).
Pros and cons really depend on your perspective. I can't speak for the X1 because I never owned one. But for me.......
Pros: expandable storage, sound quality, display (way better than the nano), power, aesthetics (especially with the carbon fiber skin)
Cons: not as intuitive as the ipod in terms of the UI, embedded album art takes about 3 seconds for it to load (has no effect on playback with songs, just album art), buttons (I prefer it to be more "clicky")
I was really hesitant at first because this is my first DAP. I researched day and night, trying to decide wether I should get this or not. I came to the conclusion that I really have to try it for myself and gain that experience nobody else can give me. At the end of the day, I was pretty happy and satisfied. Hope that helped!
Note: This is based on recent impressions I have...... I just got the X5ii recently.