You bet. It's the DAC AND the converter both. See this article I wrote on Computer Audio:
If done right, it will sound better than 99% of the cd players on the market. It will not play SACD's.
I have had my hard drive system for almost 3 years now, and I will never go back to a cd player. The ability to find over 400 cd's without leaving my listening chair makes for a much nicer experience. AudioAsylum has a section on computer audio that is a big help.
In the future of my system I'm seeking a component that would record A/D D/D and playback out of hardrive as a desctop item
i.e. something like this: http://www.bhphotovideo.com/bnh/controller/home?O=productlist&A=details&Q=&sku=286212&is=REG&addedTroughType=search
I have been running a hard drive for about a year now and it sounds superb. As stated above, the convienience is fantastic. Foobar has been my choice for the front end, with a Chaintek 710 for bit perfect output. The DAC is the Musical Fidelity Tri Vista 21 to a Bryston BP 26 and 4 Bryston 7BSST amps. What sounds best is up to you and your ears.