I don't own a Red Wine iModded iPod, so take this with a grain of salt. However, I have researched it extensively on this board. Unfortunately, as you probably know, Vinnie is not currently modding 5G iPods (since the case is allegedly too cramped and is a nightmare to take apart, etc.).
The iMod essentially turns your headphone-out into a line-out. So, functionally, it works exactly the same as a Pocketdock or Sik-Din. However, according to the website, if you use the iPod standard line-out, the following "offenders" are in the signal path:
-- The low quality stock SMT coupling caps after the Wolfson WM8975 DAC (used in all 4th gen. iPods)
-- Opamp output stage following the Wolfson DAC
-- The minuscule circuit board traces that travel from the top of the mother board down to the dock connector jack
-- SMD resistors and inductors directly in the signal path
-- The dock connector jack at the bottom of the iPod
-- The signal path inside the iPod dock, which contains: the dock connector plug, a very cheap ribbon cable, more minuscule pcb traces, SMD resistors, and finally the line out jack.
Basically, the iMod bypasses these offenders by the following method: "Using D.H. Labs silver wire, we take the analog output (line out) off of the dac chip and send it directly to the internal 1/8" headphone jack (converting it into a dedicated line-out jack) via high-end Black Gate Non-Polarized NX HiQ coupling capacitors."
Presumably, the iMod minimizes signal degradation, which depending on your output increases apparent sound quality. At the very least, it offers a cleaner setup (than having a relatively large dock projecting off the end of your elegant iPod).
Having yet to hear one in action, however, I can't confirm that an iModded iPod is measurably better than an un-iModded iPod. I also tend to be skeptical of reviews where there is no objective data and/or no contemporaneous comparison to an unModded product and/or that make repeated reference to burn-in improvements over time (e.g., "X sounded marginal but after 200 hours it is really starting to open up and kick ass").
Take a look at
http://www.redwineaudio.com/iMod.html for more details...