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In other threads, it has been discussed that iPod's do not provide the best sound for the discerning ear. Apparently, the audio is sent via analog through the Line Out jack, and the USB connection is solely for recharging and interface communication with your iPod.
The best means for optimal sound seems to be portable storage devices that are not music players by design. With these, the USB connection transfers the audio digitally to your car's sound system. However, I believe the average person might not be able to distinguish the difference in quality. Someone did mention that iPods (certain generations) do have a pretty good DAC (digital-to-analog converter), so it may be pointless to use other devices--assuming the BMW audio system's DAC is as good or worse.
The big question is how good is BMW's DAC? If it is indeed superior to the iPod's, one might be better off using a portable storage device instead for cleanest sound.
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