Yes, and a bit more detail...
For the AX, the audio is handled by a Texas Instruments PCM2705 digital-to-analog converter which it outputs on a 3.5mm stereo minijack. However, the innermost end of the 3.5mm jack is an optical S/PDIF transmitter.
The AX works only with iTunes v4.6+ and is limited to music files that iTunes can read; ie, 16-bit data only. (An exception is you can use a third-party product like Rogue Amoeba's AirFoil to stream other non-iTunes sources.) These data, though, can be in any file format that iTunes recognizes, from lossy MP3s at the low-quality end of the spectrum to Apple Lossless and lossless AIF or WAV files at the high end. It is also important to note that the AX functions only at a 44.1kHz sample rate. When you play 32kHz or 48kHz data, iTunes sample-rate-converts the data in real time before sending it to the AX.
One operational glitch is the fact that, as the AX doesn't have a local clock circuit, when the incoming data is interrupted, as it is when you change songs in iTunes, there is no longer a digital output to feed the DAC, which loses lock as a result. Provided you stick within its limitations and your DAC can cope with its digital output switching off at the end of songs, the combination of iTunes and an AX provides an easy way to pipe CD-quality music around your home.
