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Because bandwidth limitations in the cable and departures from the specified output and input impedances of the source and DAC, respectively, introduce timing uncertainty in the exact transitions between the high and low signal levels in the datastream. (The transitions define the ones and zeroes, not the high and low voltage values.) This timing uncertainty is called "jitter" and it is something I measure in all Stereophile's digital reviews. There are many technical articles on this subject in the "Reference" section of the magazine's free on-line archives.
It depends totally on the jitter-rejection properties of the DAC. Again this is something I measure in every review.
John Atkinson
Editor, Stereophile
Would I be correct to assume that the better the external DAC you use, the less the source will affect the overall sound?
Better in terms of what? Jitter rejection, of course, but there is no direct correlation between price and jitter rejection. Again, I suggest you look at the measured performance of the DACs that have been reviewed by Stereophile if thee is one in which you are interested.
John Atkinson
Editor, Stereophile