ViperLancer, I would like you to just stop posting misinformation and generally making a fool of yourself.
First, Dolby Digital NEVER replaced Dolby Pro Logic, Pro Logic II/IIx/IIZ (improved Pro Logic that we use nowadays) is higher quality than Dolby Digital. Where Dolby TrueHD (lossless multi channel audio used in some Blu-ray release) uses Pro Logic II as a decoder. In short, they are two different things and THEY ARE BOTH DIGITAL.
Secondly, iPod connection. Where you said you used a digital connection and an analogue connection. The digital connection, if done correctly will take the digital signal from the iPod bypassing its internal DAC to a different DAC. You are not listening to the iPod, you are listening to a different device. (< Which I doubt you actually have that, as there is only a handful of devices takes the digital signal from an iPod). The analogue signal, which I assume you do not have line-out dock. You took the signal from iPod's headphones plug, which uses iPod's headphone amp, which is crap. Or you can have a line-out dock, connected to iPod's dock connector, it takes line-level signal from iPod's DAC and bypasses the crappy headphone amp on board. It will provide much cleaner sound then double amping a signal. (< The Line-Out dock is what I think you mean by your "digital" signal)
Thirdly, digital speakers/headphones will always be poor compared to a good setup with analogue speakers/headphones. You simply cannot fit a high-end DAC and class-A amp inside a digital speakers/headphones, they might sound better than onboard sound, but with a decent DAC/amp combo, it is not likely to be close.
I could go on, but I guess you got the idea.