Best way to connect iPod Touch to old stereo (SONY STR-AV710)

Just use a 3.5 mm to RCA connector.

Of course. I gave you the simplest option but a dock should give you some additional features.

if you buy a dock get the apple dock. I see a lot of docks lose the charging feature after a year due to apple updates.

http://www.bhphotovideo.com/bnh/controller/home?O=&sku=750551&Q=&is=REG&A=details

Try using an Apple Airport Express. You can use it to stream music from an apple wifi device to the Airport Express and play through the Receiver (which would be connected to the Airport device) You can also use an Apple TV Box to do the same thing if your tv audio is connected to the receiver.

... a better way, but costs a little bit of money...

Pure i-20 Dock

On one of my systems I use something like this: http://amzn.com/B004SBBDD0

That method is similar to your dock plan, and it also let's you charge your iPod. By playing through the dock connector instead of the headphone jack, you should be bypassing the internal amplifiers. That's a good thing.

On a different ystem I'm using an airport express as mentioned above. The sound from it is really good as well, and being able to walk around and change songs with the device in my hand is a very nice convenience.

I personally use the Airport Express with Optical Cable out to my receiver. What is nice is, that now that iTunes allows for higher bitrate files (I have a few 24bit/192khz) that I can pass along via the Airport Express to my system and let my receiver's DAC decode them. I can also not use my Mac (iTunes Server) or my NAS (also an iTunes server) and just put Pandora on my iPhone/iPad and send the output directly out to my Airport and play that on the receiver (you can do games and movies this way too).

Side note: With the dock I mentioned above, you can bypass the DAC in the iPhone/iPod/iPad completely and let the Dock do the work, or send the info out digitally and let your receiver's DAC do the work.

I agree with SID3W8Z on the PURE i-20. Nice device, great flexibility, and decent DAC. For a little more money, go with this.
http://www.logitech.com/en-us/speakers-audio/wireless-music-systems/squeezebox-touch
The best way to get to Itunes library with a great DAC built in, very adaptable and direct access to internet radio like MOG and PANDORA.

I don't suppose you recall what you paid for the STR AV-710? I have one that dies recently due to power line problems and I may be abble to file an insurance claim but I can't find the receipt (from 23 years ago!). Thanks.

MH