These slides show the ecosphere, how it applies if you want to use it for HD audio (i.e. not tracks from the iTunes store which use lossy AAC compression, but tracks purchased from other sites such as Linn Records in high quality, non compressed formats), a summary of the AAC download and CD ripped paths - essentially the focus of Apple's efforts, and finally how I think the ecosphere should be. That means how it should be simplified.
Here is the whole thing. Confusing isn't it? Note the mixture of audio qualities, Bluetooth (Green), AAC & CD (yellow) and HD audio (purple). Note that Apple does not support the most common download standard for HD audio, FLAC, so you need a conversion to AIFF program, for example XLD.
Here is just the HD audio part. This is quite simple and a good reason why many people use Apple's stuff for HD quality music HiFi systems. The output can be either from your own external DAC or from an Apple TV. HD audio cannot be streamed through the Apple TV, but must be synced to maintain the HD quality. Airport Express does not support HD audio streaming as files are down-sampled before WiFi transmission.
Here is the "Apple" ecosphere by itself, showing just AAC & CD quality audio, note that there are three inputs: the iPod/iPad, iTunes on a Mac or the Apple TV; and four outputs: direct from a Mac, via an Airport Express or Apple TV and direct or via Bluetooth from an iPod or iPad. Ubiquitous but maybe confusing? The Mac, Airport Express and Apple TV provide Optical audio outputs as well as analog.
FInally here's my idea of how it needs to be simplified. First by dropping AAC lossy compression and using FLAC file standards to give true CD (16bit/44.1kHz) and HD (24bit/96kHz) quality; introducing a new Super Airport Express capable of handling HD Audio over WiFi and with an HDMI output for surround sound, and the use of a special, new amplifier design called the Stream Digital Amplifier (see Cottage Audio) and a Bluetooth receiver (for example the new one from Belkin) for the iPod/iPad - alternatively the iPod/iPad could stream audio over WiFi just as a MacBook does using Airtunes.