Help with PowerMac G5 Leopard and iTunes

I need some help improving the sound coming out of my PowerMac G5 running OS X 10.5 Leopard (it cannot run Snow Leopard). Currently it is being employed as a DVR in my system, and I would really like to use it as a music source as well. The sound for video is acceptable (I don't have very high standards in that respect). The sound for music playback from iTunes however is quite bad, even though almost all of the music was ripped from CD's using Apple Lossless compression. Here is a description of my system and the problem:

The amplifier is a Music Hall Maven stereo receiver (I am not interested in surround sound). The receiver has analog, toslink digital and SPDIF digital inputs. Sources include the PowerMac, an OLD JVC DVD player with K2 circuitry, and a Panasonic DMR-E80H DVD Player/DVR. The PowerMac has a toslink digital output, and I also have a Behringer U-Control (UCA202) USB device that can output toslink digital. I am using a glass fiber toslink cable. The speakers are Dynaudio Audience 52SE's. I also have a pair of Energy Connoisseur C5's, but I much prefer the Dynaudios.

The best sound from the analog inputs comes from (this will surprise some of you) the JVC DVD player. Really, this player has a much better sound than any mid-priced CD player from its time. This was my previous standard.

I'll list the sound from the digital inputs in order from worst to best.

The worst sound comes from the toslink digital input directly from the powermac. I was expecting more from this, but there is a LOT of distortion and/or compression in the signal. It is quite likely that there is a lot of jitter in the signal that is the heart of the distortion.

If I connect the toslink to the USB connected Behringer U-Control the sound is just slightly better. This is a VERY inexpensive device and I did not expect a lot from it. It served another purpose, but was worth a try. Some of the perceived "improvement" may just be that the device seems to round off some of the detail, and so I am less annoyed by the sound than that which comes from the PowerMac digital output.

The best sound by far from the digital inputs comes from connecting the Panasonic DVD/DVR through toslink directly to the amp. This is the first source in my system that bested the sound of the analog inputs from the JVC. The sound is definitely better, but keeps the inconvenience of having to locate and play each CD separately. I should note that the sound is only good from the Panasonic if the hard drive in the unit is shut down. When the unit is recording (doing its DVR duties) the sound from the digital output is dreadful.

I do not have money to spend right now, but will be saving for future upgrades. Any suggestions on setting OS X 10.5 or iTunes to improve the sound would be appreciated. I have tried every setting I can find and have unchecked all of the sound shaping/compression I could find on the current iteration of iTunes. I have followed the development of the Benchmark DAC1 USB for several years and may go with this in the future, but other DAC suggestions are welcome.
You answered your own question - DAC1 is the solution. If you have the Powermac G5 Dual 2 Ghz then I have also experienced problems with the sound on that (or at least I had a faulty sound card on mine from day 1) With mine it would even cause crashes.
Ditto, outboard dac. I have tos to sonic frontiers dac over airport express and it is.great.
For reference-I am using a Mac Mini(Snow Leopard)>USB>M2Tech Hiface>coaxial spdif>PS Audio DLIII. I am new to this but have experimented with this system for several months. My observations are these: I had a Maven and didn't like it. It seemed sterile and I didn't think the DAC sounded very good. I sold it and got a Decco for that room. I tried the PS AUdio and was sold on it. I am not saying that it is the only DAC, but the DAC makes all the difference. Adding another DAC and using analog inputs into the Maven may work well. I recently bought a DACMagic and it is a fine DAC for the money. Articulate, not tiring, handles multiple inputs, an overall good sound and something I could live with for a long time. The entry level Peachtree Decco2 is another fine performer. If you sold the Maven you could apply the funds toward a new Decco2 or iDecco. USB out from the Mac may be better than the optical depending on the DAC. You have to try both to compare. There will be many DACs coming out this year. Another inexpensive DAC that has very good press is the VALAB bought on ebay. Used DACs are the way to go. DACs don't wear out, are simple devices and work as well years down the line as they do when new. Good luck!
Keep in mind that your USB and Toslink "outs" from the Mac are only as good as the receiving piece of equipment. I have been using a Pop Pulse USB >SPDIF converter and the resolution (as indicated in the Midi Setup) is pretty poor - only because the Pop Pulse cannot handle the higher resolutions. The Pop Pulse also does Toslink >SPDIF conversions and as unbelievable as it might be, the Toslink resolutions were higher than USB. My DAC is built into the Krell HTS 7.1 processor so for me the solution is the M2Tech Hiface USB>SPDIF>Processor which raises the USB resolution up considerably.

Those that are recommending a better DAC are right on the mark depending on what the DAC can handle. For me, it is simply a matter of upgrading the conversion (USB>SPDIF).
Most USB implementations stop at 16/48 although 24/96 is possible. The Cambridge DACMagic is one unit whose USB connection won't go over 16/48. Toslink goes up to 24/96 on all units I know of. However my personal jury is out on whether Toslink sounds as good as coax at the same resolution.

My younger son uses a G5 Power Mac running Leopard as his music server. He takes USB from the computer, runs it to a HeadRoom Total Bithead and from there to a NAD C320BEE. Works and sounds fine, and would sound better with upgrades to his USB and analog cables.

I am playing with a Valab TeraLink USB-to-S/PDIF converter box and it sounds quite good, better than my M-Audio Audiophile USB at its 16/48 resolution limit. If you get such a separate converter, remember that your S/PDIF cable length will very probably affect your system's resolution. 1.5 meters is the best bet IME.
I am currently trying out the DACmagic. Using the M2tech hiface from the Mac it receives 24/96 as verified on the front panel. It is a very good DAC and made even better with the hiface.
You should check the following website:

There are several people that swear by those G5's, but they may be using a soundcard. Other people are using usb or firewire dacs.

I think I will probably try the M2Tech Hiface to convert USB to S/PDIF. This is inexpensive and will reduce the jitter. I will try to post the results when I get it set up (may be a couple of months).