In terms of not losing sound quality through a line-in, I think you would lose a little bit. Follow me here. In the iPod, the song is stored as data. The iPod turns the data into audio, THEN puts it to the headphone amp, which controls the volume and boosts the signal. Try turning your volume all the way up on your iTrip, you'll see the problem.

A head-unit that plugs into the dock connector takes the DATA directly from the iPod, and turns it into audio on the head unit. In the audio world, the less steps your AUDIO has to go thru, the better the sound. It doesn't matter so much in terms of data. I think you'd get noticeably better sound from a direct connection to the docking connector.