Hi Gary. The latest generation classic is considered a step down in sound quality from the previous generation classic and the nanao is considered to be more lively than the classic. But, my experience is that the differences are very small, far smaller than the difference achieved by changing the EQ setting on an ipod.
My only other MP3 player has been a Creative Zen and the ipod won on sound and by a mile on ease of use, design, robustness etc etc. I like the ipod so much I cant see by it.
As for a dock here is the What Hifi review section
http://whathifi.com/Reviews/Hi-Fi-Reviews/Dock-systems-Reviews/Price_Desc/
and you will see that docks are very much the poor man of hifi in terms of sound. I have a Logitech mm50 and a Bose Sounddock and for what they are, both produce an excellent sound.
Do you want a touch, or would a classic do? How big is your music collection? Will you import CDs or download, or both? Is this for your main music setup?