How are you connecting your iPod?
2nd zone audio requires an analog audio input (denon had a receiver that down converted digital to analog for 2nd zones, but not anymore. another subject). A lot of receivers have some sort of dock that you can get for them that have a proprietary connection. (denon dock denon receiver for example). Some receivers have a compatible usb input on them that allow you to plug in your ipod via the ipod cable.
My zone 2 runs through a dumb switch so that I can split and control volume between my deck and living room. I changed something in the menu options (assign) and now the panel reads AUTO instead of analog. I think that means Zone1 is now digital, I hope.
auto means it will pick the signal that it gets and format as well, digital usually gets priority.
how do you connect the iPod to your receiver? If your connecting your ipod with a 3.5mm to rca cable it will be analog.