Other options would include the Logitech Squeezebox, or else the Logitech Duet (which does the same thing but has a different DAC, and which puts the what's-playing display on the remote. Each of these is a lot cheaper than a $1000 DAC. Each also has digital outputs (as well as analog) so that you could add your own stand-alone DAC at a later date if you wanted to.

I know it's time consuming to re-rip a good size collection but that is really the most important link. Well encoded files would sound better through Apple's Airport Express' analog outs than 128AAC (iTunes default setting) through a nice DAC. Lousy compression does that much damage! I would recommend either Apple lossless or AIFF. AIFF is the full data of a CD, similar to a WAV file, but it has two distinct advantages. First, if the cover art isn't found by iTunes you can add cover art yourself, WAV doesn't allow the user to change or add cover art. Not a big deal, but still annoying. Second, WAV files only use the song title as the file name. If you move them in the wrong way from drive to drive band names and album title are lost. AIFF, supports much more robust tagging so this doesn't happen.

I too would recommending investigating a squeeze box. Most of the power of a music server, without the expense.

I've spent some time with this myself. Findings:

- encoding has the biggest impact. I re-ripped my CD's as lossless and changed the album name (added an extension) so that I can have one version for my stereo and another (compressed) for my iPod. I then created 2 smart-folders based on compression to ease syncing.

- Airport express DAC is poor. I use Signal from AlloySoft as an iPod remote control.

- AppleTV DAC is noticeably better than the Airport express. Good for casual listening, not good for serious listening. Limited range. Oh, and the TV has to be on.

- Some CD players have digital in (airport express and AppleTV have digital out) if you want to kill two birds. But if you already have a good CD player this prob does not help.

Long story short. Re-rip / express is bad / get a DAC for serious listening.