Originally Posted by hpc3
I know my iPhone5 plugged in through the USB/Lighting cable sounds worse vs the older iPod(assuming due to the DACs between the two).
USB doesn't carry analog audio or video. USB1-2 has only 4 pins, two of them are power, the other two carry data. If you connect any device via the USB cable, the BMW's DACs are always used. There is no way DACs in a device could be used because there is no analog connection.
There shouldn't be any audible difference between any type of device connected with USB, assuming the same audio file on each device (different generations if iPads, iPhones, Windows phones, Android phones, USB sticks, etc.) The only way you could get an audible difference over USB is by delivering inferior data, e.g. recompressing the data. Recompression does happen over Bluetooth A2DP for bandwidth reasons, but shouldn't happen over USB, and shouldn't be different between iPhone 4 & 5.
I don't want to tell you that you aren't hearing a difference, but consider that it may be power of suggestion -- you've read of audible differences on the forums, and it's true that everyone using a Y-cable will hear a difference because with the Y-cable the DAC in the device is used instead of the DAC in the car (with the iPhone 5 the DAC is actually some cheap tiny chip embedded in the Lightning-to-30-pin adapter plug).