I don't think your iPod has anything to with it sounding good. My iPod actually sounds worse than a CD. But to be honest I think a lot of 986 / 987 owners are overly critical. In comparison to most other car sound system ours is top notch, these are Porsches not Toyotas, or Hondas.
I am no audiophile but I do enjoy a nice sound system, and I think the 986 Hi-Fi is fine and better than most other cars. Unless your ears require a Bose setup, the regular sound system is fine.
Just my $0.02!
