It's actually becasue the iPod is using the digital/analog converters built into the ipod and then the signal is porting directly into the stock stereo and amplified.
Lets say you get an aftermarked headunit like the Alpine IVA series with IPod functionality. The difference is the digital/analog converters inside the Ipod are bypassed and the much higher quality ones in the head unit are used instead.
This makes a HUGE difference in sound quality.
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