I agree with jwlv that line-out is essentially the same audio out chip in all three dot generations. not much to do to improve the audio chips today. I have had a gen 1 plugged in my stereo since I got it, but recently put a gen 2 in its place to check something. The gen 2 line out sounded the same and as good as the gen 1.
I now have two gen 3's I got so i could finally bear the sound of listening to music playing on a dot's speaker. the gen 3 speaker sounds about as good as my first gen 1 tall Echo, and my newest dots will not be plugged into my stereo, but a gen 2 will likely replace the gen 1 which runs so warm that it needs to be sitting on a coaster for insulation. No way would a gen 3 dot be wasted as a line out device when i will have a spare gen 2 dot!
Thanks for sharing your real-world experience. I replaced a Gen 2 with a Gen 3 last night and, same as you, noticed no difference in the line-out sound quality. Looks are greatly improved (living room device) and perhaps the far-field microphone will be an improvement, although that's not a complaint about the Gen 2. I can't document any specific issues with the Gen 2 microphones, but who knows. There was the occasional need to repeat myself, but that's happens with Gen 3's too.
I decided to trade in my one Gen 2 on Prime Day to take advantage of the $5 Gift card and the 25% off a new device. After the trade-in refund, gift card and other bundles I've taken advantage of recently, I now have 4 Gen 3's at an average price of $28. Yeah, I wasted a few bucks overall (~$12) by swapping the 2 for the 3 but at least I'm consistent across the house now.
Speaking of microphone sensitivity, I can say without a doubt that the Gen 3 has better pick up than a Samsung Galaxy S6. Allow me to explain...
I was using an old S6 as a line out device in my workshop. It was mainly used to stream Amazon Music but one of the bundles I bought included a Smart Plug. I have a wet-dry vac in a cabinet that is the heart of my dust collection system. I had it plugged into a receptacle that was controlled by a hand held remote, but I wanted to try the Smart Plug so I could control it by voice. The S6 worked great for "Alexa, vacuum on" but couldn't hear me when I said "Alexa, vacuum off". I had to turn, face the phone and yell. The Gen 3 works so, so much better. I have to raise my voice slightly, especially if there is music playing, but I don't have to turn to face the device or yell. The Gen 3 can hear me from wherever I am in the shop and only occasionally asks "Did you mean vacuum?"