We all need to remember that when it comes to amplifiers, power output and sound quality are not generally inter-related.
In most cases how much power an amp has will have nothing to do with how good it sounds, as long as it has enough power to drive your headphones properly.
My question, in relation to the X5 and the E12 is this. Considering the E12's stand alone price, why doesn't the amp in the X5 sound at least as good as the E12? It seems to me FiiO should have been able to accomplish this easily and maintain the current list price of the X5 or very close to it.
Perhaps they are saving that for the X7?
Now let starts with a question - if it takes all the internal part of the E12 to make it sound as good as it is, can we expect to reduce and replace a majority of those parts and still makes it as good as it is? Unless it is magic, I'll say the logical thinking is 'no'. Now if you follow that line of thought, summing up what X5 needs for the processor, the DAC, plus all the bits and pieces that required for it to function properly as a DAP, then take them all out - what is left is for the analog (amplification) stage, where it needs to settle with what are left behind (the limited space on the PCB and available power) and what it needs to deal with (like the noise generated by the rest of the system). Now going back to the E12, with its full portable amp worth of parts, and compared it to what is in the X5, do you think it is logical to think they should be equal in performance? Unless it is magic, I'll say the logical thinking is still a 'no'.
Can FiiO makes the amp section in X5 as good as E12? Yes. The question is, at what cost and does it makes sense or not? FiiO can certainly build it into brick size, but does it as sell-able as it is now? Who is going to buy such a DAP? Mainstream or audiophiles only? These are all choices that FiiO made during the design process to produce a DAP they think they can sell to their targeted market, and it certainly doesn't limited to audiophiles only.
Ferrari Enzo might be a great car, but it will suck as a family car for picking up kids from school or go to the grocery store. A mini van might be good at those, but it certainly doesn't drive like a sport car. The question you asked is pretty much like asking Ferrari why Enzo doesn't have the space and conform of the mini van. It is not a question whether it can be done or not, but whether it makes sense to do so. Just as you are paying for Enzo as a sport car and therefore it doesn't make for a good family car even though it cost a hell lot more than one, you are paying X5 as a DAP and not an E12 even though it cost more than an E12.