Actually I don't think 25' would be a problem with a standard gauge RCA cable. A standard gauge cable should be good for over 100'.
However, I do recall once reading somewhere that the stereo jack adapter, since it creates a section without the outer sheathing over the hot wire that creates a shield, can reduce this to just 50' but a distance problem usually creates a hum or static, where as you describe poor sound quality. Plus, you are still only half that distance.
It could be as simple as the source, ( I have nothing but rental car experience with sat. radio) but I think that if you really want to prove that the signal is degrading somewhere between the equipment, you simply need to to do as you mention, bring the two closer together, and/or use a Toslink.
I take back my cost comment on the optic cables. I thought a longer run would be expensive but a 25 footer is dirt cheap now online.
