digital upgrade opinions

hello, I'm a newbie, and recently put together a midfi system with a very decent tube integrated and a pair of monitors.
I'm looking to upgrade my source which is currently a generic DVD player. I'd basically like to hear what would be a more wise upgrade path between:
1) Getting a "budget" CD player like the Musical Hall/Onix MMF25
2) Spending all my money on the best <1000 DAC I can find (DAC recommendations are welcome) to pair with my existing player.
Any advice would be great!
If redbook is your primary choice in cds. I would go with the Dac.You can then in the future go with another player or computer based system and still use the Dac.

A Benchmark DAC-1 straight into your amps via the variable output should be the highest bang-for-the-buck upgrade for that money. And I'm taking my own advice on that one. :)
A Bel Canto DAC 2 would also be a great choice. These sell fast here. I would definitely get a very good dac and use the dvd player as a transport. A transport can make a difference but not near as much as a dac in my experience.
With any external DAC, the digital cable is the link that becomes important. Use a power cable and you'll get poor sound. There are many good DACs in the $1000 price range. Some are mentioned above.

Happy Listening.
DAC for sure.
thanks for the advice! I was already leaning towards a DAC rather than a new CDP (although the modded Music Hall player looks pretty nice).
Some of the DACs I've been looking at are the Bel Canto DAC2, the Benchmark, and the Audio Mirror. My amp is a bizzy bee modded Cayin TA-30 so if anyone has an opinion on a good match it would be cool.
Paul from bizzy bee/Tube Audio Designs told me he would be releasing a TAD brand DAC in a few months and although I'm VERY impressed with the Cayin I'm just not sure I can wait that long.