1. "...The DAC do all the work".
2. "balanced in/outputs produce a better sound than does regular RCA in/outputs" all else being equal.
3. "compact DAC "the smaller the better" that offers good to excellent sound for not a lot of money": some of the Audio Alchemy DACS are small and though old and no longer come with customer service, offer good Red Book/HDCD sound, and can be found used here on Audiogon for not a lot of money.
4. "what should I be looking for...." Gee, I wouldn't know where to begin, but this is a good place to start.
2. "balanced in/outputs produce a better sound than does regular RCA in/outputs" all else being equal.
3. "compact DAC "the smaller the better" that offers good to excellent sound for not a lot of money": some of the Audio Alchemy DACS are small and though old and no longer come with customer service, offer good Red Book/HDCD sound, and can be found used here on Audiogon for not a lot of money.
4. "what should I be looking for...." Gee, I wouldn't know where to begin, but this is a good place to start.