My dac (PS Audio DLIII) improves the sound of mp3's streaming to Airport Express, toslink, even usb. My files are on both internal and external hdd's - iMac G5. OTOH, I am currently feeding to internal dac of an HT processor (Sunfire). Must say the dac is still better for stereo, but the HT procesor is still very good. For dedicated 2 channel, I recommend an external dac.
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If you are committed to the existing files, don't spend too much money else you will start to cringe at the defects in the .mp3 files that a good piece of equipment will reveal. try a Fubar 2 USB dac for $137 and see if that doesn't float your boat. I have a Fubar 3 (includes a headphone amp) that I use at my computer with FLAC and 320k mp3 files and it does a great job.
As an alternative, you can always pay a ripping service to redo all your CDs ($.25-.75 per disk, depending on service). At that point, you can use any digital solution you want and never worry about quality. It's well worth it in the long run.
Every time I've made an improvement or upgrade in my system, the sound improved across the board - including mp3 files each time. The mp3s still sounded like mp3s relative to FLAC, but they sounded better than they did before just as FLAC sounded better than they did before.
If you are only willing to do one or the other, I'm guessing that the improvement gained from using a decent DAC will be greater than the improvement gained from switching to FLAC. Whether or not the improvement is worth it will depend on the DAC and your ears.