Basically the line-out bypasses the internal amp. This mainly allows you to use a different amp with the said device. It is rarely a good idea to double amp, hence why lineout is preferred by many (like the LODs for iPods and Fuze)

In this case, the lineout will bypass the E7's amp, hence making the E7 only a DAC device. This would be useful if you want to use a different (and should be more powerful) amp.

As far as E7 goes, its lineout is meant only with a docking accessory supposedly to come with the E9.