I have been using the iPod Nano w/ the Apple lightning to 30 adapter (DAC inside) to a 30 pin to RCA in w/o any issues. I am up to date on the latest firmware and still get even the "This Device is not compatable" dialog box. Doesn't seem to matter and palys OK.
If I wanted to add another DAC (other than the DAC built inside the Apple Lightning to 30 pin) would I then use a Lightning to 'X' connector at DAC then out of the DAC to a RCA R/L cable and into amp line level?
First, you need to use a MFi (*Made For iDevice) certified DAC that support the iPod Nano (*this is important as some MFi certified DAC only support iPhone / iTouch, but not iPod Nano or iPod Classic). Secondly, you only need a normal Lightning-to-USB cable - yes, the same kind of charge-and-sync cable that comes as stock cable with every iPod Nano. You can use the stock cable if you want, but I think most people will prefer a shorten one. The good news is, just about every MFi certified DAC should already comes with such a free shorten cable inside the box, thus you don't really need to buy a new cable.
In sum - there is no one magical cable that will let your iPod Nano works with every DAC. Only selected DAC that have MFi for iPod Nano will work, and they are usually not cheap. My recommendation, which I think will give you some of the best bang for your buck, is the OPPO HA-2 (and the newer HA-2SE). There are however much more expensive option out there for you to choose from.