Certainly, using the same speaker system and comparing the same tracks played first from my iPod touch using the headphone output and then via the ND-S1's optical output, the difference was tangible. Tracks are reproduced with more texture and detail making the listening experience that much more immersive.
Take AFI's Too Shy to Scream. A great track however listened to, but using the ND-S1 the vocals sound more accurate and instruments more defined; there's a precision and a distinction to the cymbal hits that's lost when using the iPod's internal processing. Similarly, additional vocal clarity was eked out of Frou Frou's Let Go much to my enjoyment.
Turn the volume up a bit and there's notably less compression using the ND-S1, too, no doubt thanks to only having an external DAC working its magic on the signal. The residents of our neighbouring office weren't quite so impressed, alas, but I often have a hard time convincing others that there's nothing wrong with listening to Fall Out Boy and Avril Lavigne.
I'd usually mention alternatives but the ND-S1 is pretty much peerless. However, if you don't already own a decent AV/hi-fi system, Bowers & Wilkins' Zeppelin might be a better and possibly cheaper option as it's still the best sounding speaker dock money can buy. However, it can't dish out sound quality to match a dedicated AV/H-Fi set-up using the ND-S1. Similarly the iTube ValveDock Carbon Edition Mk2 does an incredible job of making an iPod sound great, but it's still using the player's DAC so there's only so much it can do.
The £150-odd asking price doesn't make the ND-S1 cheap but to serious users the improved audio quality together with the built-in USB audio interface will be worth it - especially if you're investing in an iPod-centric system from scratch or introducing an iPod to your existing hi-fi system.
The Onkyo ND-S1 Digital Media Transport isn't cheap, but if you're serious about getting quality audio using an iPod, it's the best option you have.