Here is my response to a similar question that was recently posted on AA (you may want to do a search on the AA Digital Drive, since one member called BC and had some interesting comments):
"I originally paired the Bel Canto with a Pioneer 525 DVD player and Toslink based on the standard recommendation from from BC. Not bad, but there was no question that using Coax was better, even pretty good (I use Acoustic Zen Silver Photon, MSRP $98, but available for less).
There is also no question that using a good dedicated CD transport was better yet (I auditioned several and decided on the Proceed CDD, about $900 used). I am not sure at what price the CD transport overtakes Coax/DVD, but my recomendation, after listening to each extensively, would be 1) to skip the DVD/Toslink combo completely, and 2) to audition a few transports in your price range and compare to DVD/Coax. The difference between DVD/Toslink (I tried several cables, 1 and 2 meters) and the Proceed/Coax is so large that I have a hard time believing it is equipment and room sensitive, and based on my experience really can not understand why BC makes the recommendation it does. Perhaps I purchased a bum 525, though it was new.