New CD player or DAC

I am interested in "upgrading" my digital signal. I listen to "rock" music on DAT & CD (about 50-50) Right now I have a Tascam DAT & listen to CD's on my Sony DVD player. I was wondering if I'm better off buying a DAC like the Link III for both digital sources or purchasing the Music Hall CD-25 or Cambridge D500 SE. As you can see my budget is about $500.00. I have been getting into more CD music so I may start to use the CD player more than the DAT, but I still need the DAT for my personal recordings. The rest of the system is DNA-1, CJ PV10AL & Vandersteen 2ce Sigs with junk cables. I'm also open to other suggestions for DAC's or CDP's & realize I need to upgrade my cables as soon as I figure out which ones to start with.
For a budget of $500 I would look for a used Bel Canto DAC-1 and just use the Sony as a transport.

If you want brand new, then a Link DAC III is a better choice than getting the Music Hall or Cambridge, since you already have something to use as a transport. They are fine budget players, however the Link III is a definite step higher.
You could also pick up a used Link II (2) for around $175 to $200. If is the same in stock form as the Link III, it just cannot handle most of the add-on upgrade boards such as upsampling, etc.
Thanks for the reply. It is my understanding that the DVD or CDP is only used as a transport with a DAC if the coax is used, it will then by pass the adc & op amps in the DVD/CDP? So it really shouldn't matter what you use for a transport so long as it is a stable platter, good laser, etc, etc. Which was why my thought was to focus on a "decent" DAC & not worry about the "better" CDP. Is this correct or am I just hoping to save some pennies.
It's a matter of your budget.
The transport matters a lot but in your case I still would keep the Sony and get a decent DAC which benefits your DAT also. You always can upgrade your transport later which you should definitely do. A new world can open up with a high end transport!
Good luck!
There are other issues; good digital and analog cables don't come cheap. There is also the likely need for a jitter reduction device like the Monarchy DIP, which you can buy used for under $100.00. However, you can get a really fine quality used 20 bit DAC like the Muse 2 for about $500.00, depending on options. I would also definately go for better cables as part of any upgrade. Likely to be nearly as important as a new DAC. You may want to consider used DH Labs ICs and speaker wire, or Audioquest. Also used Homegrown Audio should be available cheap.
There are plenty of great 20bit Dacs on Audiogon right now that can be had for way under $500. The EAD dacs are great and used to retail for well over $2000 a few years ago. I also recommend the Bel Canto DAC1.
Bel canto dac1 will tune up your Sony's sound nicely
and later on you can always upgrade to the Dac2 and you
wont lose any $$$.
I have owned both a Link Dac and Bel Canto and much prefer the Bel Canto (smoother, with better bass). I used to think that good digital cables didn't come cheap until I recently tried the Phoenix Gold Drx910. Unbelievably good for $30. If you go with the Bel Canto, it may also work ok with a Monster lightspeed toslink cable.