Try both, I suspect you'll settle on all the way up.

The volume should be all of the way up unless it overpowers the input and causes it to clip. If it is a digital volume control it should certainly be all of the way up. For every 6db reduction of volume using a digitally implemented volume control you lose 1 bit of resolution. Just because the read out is "digital" of course doesn't mean that the volume control is digitally implemented.

I agree with the other suggestions. If you can hook the player directly to your amp and use the players variable output, you can evaluate the merits of your preamp being removed from your system. Some like it, some don't. Just make sure the cd player is at the lowest output level when you press play...then slowly raise the volume.