I'm running an older Rotel RCD-1070 with a Levinson 360S ... I have had more than a few comments from people who dont know jack about audio gear regarding the clarity and smoothness of my new setup. I started with the Rotel just to get by and then decided to go for the gold and spend the cash on a DAC/transport combo. Man, what a difference. I agree totally with Plato; the DAC is what makes the biggest contribution to the quality of output, so that is what I have spent the lions share of my money on.
Sure, I drewl over the Levinson No. 31.5 transport, but that little voice inside my head is telling me that for my system, it would mostly be for looks and bragging rights. As for digital cables ... I have a pretty modest setup. I have tried a few different combos but the differences so far were modest.
I have to admit I was a little paranoid about the DAC split from the player. I read a lot about jitter and the problems with separating the DAC and transport functions. I listened to a couple of jitter tracks on some test CD's to get an idea what I was in for ... and as far as my ears can tell, my setup suffers from none of that. In fact, high frequency is quite excellent.
I dont suggest spending what I did unless you can afford it ... to my ears there doesnt seem to be a direct correlation between DAC cost and sonic improvement. The good news is: as soon as you find one you like it can move with you from transport to transport. I figure Redbook is here to stay, I have a lot invested in music - I might as well get the most out of it.