I have a 5th Gen 30GB iPod Video, the Universal Dock with the infrared remote, the Sendstation Pocket Line-Out USB and the Parser iPlug for connect any iPod to the car. My conclusion is as follows:
1. The Universal Dock has some sort of pre-amp for controlling the volume when you use the remote, so the line-out offered by the Universal Dock is not a true line-out, and therefore the signal is somehow altered through it.
2. The Sendstation Pocket Line-Out USB offers a true line-out. You can check this as far as you slide the volume control on the iPod and verifiyng that the output signal isn't altered.
3. So the 5th Gen iPod unit itself has a real line-out that you can get only if you use a connector that get it unaltered. In my case the Sendstation Pocket Line-Out USB, but there are other solutions available (SIK din, i.e.)
To judge the difference between the real line-out and the pre-amped version of the Universal Dock you need to have in mind the quality components. The higher the quality, the higher the difference because you're going to be able to listen to these differences more clearly. With average equipment the difference is going to be audible, but certainly not as clear.
At home, I listen to the music stored in my iPod connected with a Profigold or Monster Cable and the Sendstation Pocket Line-Out with a Musical Fidelity X-CAN v3 headphone amp and a pair of Sennheiser HD-650 and I think the result is terrific. I can rival with much more expensive gear with ease.
Related to this and more interesting is the quality of the line-out. Recently i've bought a 4GB iPod Mini for the car - it's easier to shuffle between less songs - and I think that the quality of this line-out is better than the one in the video iPod. I'll try to do some ABX tests and I'll tell if I could conclude something particular.