Just for background info, I have a 2nd gen iPod Touch, so can't install the DPS app because it's not supported on the 2nd gen model.
I've been playing around with an idea and tried it out today. I have a Creative Labs sound card which has a bunch of utilities, one of which is the Creative Smart Recorder. I played a song through the Windows Media Player with DPS running and recorded it. It can create MP3 and other types of files, such as WAV, so I created an MP3 320kbps file and imported it into iTunes. Then I synched the song onto my iPod and played it back. Voila! All the benefits of DPS were there and it sounded fantastic on the iPod. Obviously, it would be an onerous process to do this for all my music, but it was an interesting experiment.