I was concernd about the changer ports input being analog and having alot of degradation of the sound quality in the tranfer.
So if the connection is analog......will I notice a difference between an MP3 cd and the ipod conection if they were playing the same file?
Transfer, what transfer? Every iPod interface out there, whether it's Kenwood or Alpine, or Pioneer, or whoever; whether it be a full-integration interface or just an AUX input (which isn't really an interface); uses analog audio from the iPod. Nothing ever gets "transferred". The iPod still does all the audio decoding and playback.
All you're doing is getting the analog audio from the dock connector (or headphones port depending on how you do it) and then, with the integration interfaces, you get control and metadata (text info) from the iPod that way. Whichever way you connect it, the connection is
always analog for the audio portion. The only way you'd get a "transfer" of the file going on would be if you used the iPod in mass-storage mode (using the HDD to store MP3 files) and used a HU with a USB input. However files simply put on the iPod in mass-storage aren't playable/browseable on the iPod AFAIK, so in that case you're not really using the iPod as an iPod so much as a portable USB HDD.
The difference from the MP3 CD is that with that, the HU is decoding the MP3 file with it's own decoder and then it's own D/A to output the audio. With the iPod, the iPod does the decoding and outputs the audio to the HU. If the HU does digital-domain processing (crossover, EQ, etc.) then the HU will A/D that signal and then process it and then D/A it again to output the audio. Not every HU will do digital-domain processing but I think most newer higher-end ones do. However either way, the sound quality difference is not going to be that noticeable. The main thing you should be worried about if you're concerned with that is the bitrate you rip or download files in, on the iPod.
For the best quality out of MP3s you'll want to be using LAME encoded files with at least --alt preset extreme (high bitrate VBR) [or whatever the equivalent of the alt preset is in the new versions of LAME] or --alt preset insane (320kbps CBR). If you're using files that are low bitrates (say 192kbps and lower) then I would worry about that impeding your quality way before anything else. Same goes for any other codecs you may use (AAC, WMA, etc.).