If your preamp or receiver do the new codecs (DTS HD, Dolby TrueHD) and you have HD DVD or Blu-ray it is a huge step up, akin to MP3 vs. CD.
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Also, for music, if you get a receiver/processor with HDMI 1.3, AND a SACD/DVD-Audio player with HDMI 1.2 that can send DSD and DVD-Audio via HDMI, the sound quality is fabulous. You can get an Oppo 980 for $169. I have it, and SACD DSD and DVD-Audio go directly to the receiver. This also allows you to do away with all kinds of interconnects.