If you use bluetooth you automatically lose sound quality, most people can barely notice the sound quality loss, but if you start playing MP4s from your iPod through a auxiliary cable you can really tell. If you are playing music through Pandora you will also lose sound quality, since I noticed Pandora doesn't stream full quality unless you are a paying customer of theirs.
You can also try just plugging your iPhone into the USB port, I believe it will load all of your songs onto the screen and you will be able to control from there. Only thing I've found that's bad with the USB port is the shuffle feature is really bad...
