iTunes Match does not stream to iOS devices. All music listened to is downloaded to the device. If a song is "matched" or "purchased" the track is (generally) being downloaded from the iTunes Store as a 256 Kbps DRM-free file. If the track is "uploaded" it is the same track that is in the iTunes library. All "uploaded" tracks are uploaded as-is with no changes.
There's definitely a degradation while playing something that hasn't been previously downloaded... I understand the difference between streaming and downloading, but as the playback of an undownloaded track starts before the download has finished, it effectively IS streaming, even if it's keeping the downloaded data afterwards rather than ditching it, as with "ordinary" streaming, i.e Youtube.
If I click play on a track that's not previously downloaded, (that still has the cloud next to it), it delays a little to buffer, then begins playback. The quality if really aweful, a night and day difference. If I click the cloud and wait until the whole thing is finished downloading, then play it, the quality is as I'd expect, 256kbps aac. The quality of the un-fully-downloaded tracks is definitly lesser, I'm not imagining it.
I imagine that Apple might send a lower quality stream if the 3G signal strength is low, to reduce the chances of "break-up" in playback continuity, but if that's the case, I've no idea how it then patches the additional data (for the max quality 256kbps ontop of that when then entire track finishes buffering, and is kept. There's more too it than it seems, I'm sure...
I've just had another thought...
There's a chance that my issue with the quality being lower during "streaming" rather than when the file finishes downloading and is played, is because I'm using bluetooth to connect to my car's head unit. I think that the quality loss is with the bluetooth during heavy 3G transfer. When the file finishes downloading, and is played, the bluetooth is unaffected and the quality is good, but if I play a track that'll have to download as it's playing, I think the bluetooth is degrading due to bandwidth restrictions or interference from the 3G antenna (they are the same antenna right?).
I think I've cracked it. I'm going to get a cable and try that to see if the quality is excellent when connected with that during "streaming", if it is, it's the bluetooth...
Perhaps I just missed it in your OP, but I think the fact you are downloading the song over 3G and sending it via Bluetooth to your car sound system at the same time is the main culprit. It sounds like you may be correct in that the signal is getting "reduced" (for lack of a better term) when it hits the Bluetooth.
As far as I know there is no compression going on when the song starts playing while it is downloading.
Yep, that's it. Done some testing and if I pause the song until it's finished downloading (so 3G becomes idle) then play, the quality immediately returns to what I'd expect.
So you're right the song isn't being reduced in bitrate, but the bluetooth is either reducing in bandwidth or broadcast strength while 3G is heavily active... Bummer...