AppleTV variable output trade-offs?

Hi - iI am using an AppleTV as a music server with just WAV files feeding my Reimyo DAC, and turned the variable output ON in order to control it thru my iPod Touch remote feature.

I was wondering if this feature is affecting either resolution or quality since I do not know if this control works or not in digital domain, I recall an old Wadia 6 I had which DID affect resolution as one moved volume down.

Any word to clarify this will be appreciated.
I believe it works in the digital domain, which means it will degrade quality. I run my AppleTV's via their optical out to an external DAC. My (possibly wrong) understanding is that if something at the source decreases volume through the source's digital output, it is doing it digitally.

Having said that, when using the AppleTv's volume control for modest volume attenuation, I don't hear any significant sound quality degredation. That said, I only use the AppleTV's volume control in my second system, which is not the final word on resolution.
Dudes, excellent info!!