So it won't work without that chip... is that what I'm understanding? It sounds like they want to make it difficult to record using the iPod as an analog source. It's not impossible, most likely, but it would be tricky (soldering lil' wires will make in inconvenient). If they make a control with a headphone out on it, then I'll have been wrong-- but I guess that they won't. I have a walkman that has an external controller (optional to use) and has a HP jack... meh. It's DRM... but it isn't.

"Monster Cable, said it was DRM because it didn't use authentication"

I'm sure you left off the "n't" in "was" quite by accident