New Intel Mac-mini to external DAC

I currently have a two-channel system, that while high-end, sits firmly in the budget category (b&w cm6s, rotel 1070 pre-amp, 1080 amp and an arcam cd73). I also have a squeeze box that allows me to access my digital music from my mac laptop, and it sounds great. The problem I have is that the squeeze box doesn't sound as nice as the Arcam, and the laptop hard drive is nearly full (all my files are lossless). The difference in sound quality is most likely coming from the DACs in the two devices, as I'm using the same interconnects on the Squeezebox as the Arcam (kimber heros) and there is still a difference in sound quality. I would like to match or outperform my arcam with a computer/hard-drive. It seems that i should be able to purchase the new mac-mini for six hundred bucks (and also by an external harddrive), rip the rest of my cds, and then send the data to an external DAC and get better sound quality than my arcam. What I'm trying to figure out is what kind of DAC I should be looking at? The wavlength brick usb dac looks interesting, but seems a little pricey at $1750. And I'm not sure what the advantages of the USB connection really are (is jitter really a problem?) Can I run optical out of the new intel mac mini to a less expensive second-hand DAC? What are the advantages to going USB? What other options are available that will match or exceed the sound quality of the ARCAM? I would appreciate any thoughts.

Jeff - the real advantage of a properly executed USB DAC (many are not) is that it eliminates the SPDIF step in the chain. As you get into this, you will discover that a lot of SPDIF cables and implementations are less then excellent and add an additional layer of grunge/noise to the signal.

IMHO moving from an electro-optical-mechanical transport to a hard drive is where the biggest quality gain comes from.

I run Toslink (optical) out to a DAC and it is excellent. Problem for the moment is that there are a limited range of choices for the mini-Toslink format. Good results with Toslink depend on having glass as opposed to fiber conductors.

There are huge numbers of nice DACs available here at every price point imaginable. (Not all take Toslink) The other choice would be to have Bolder Audio or RedWine Audio mod your Squeezebox. Dollars are certainly less or similar and many would argue that the results are superior then all but the very best DACs.
"The problem I have is that the squeeze box doesn't sound as nice as the Arcam, and the laptop hard drive is nearly full (all my files are lossless)."

I'm not surprised that the SB doesn't sound as good as your Arcam.

If you have to buy a Mac mini(Macs have high jitter on the optical output), a DAC, modify your SB or get a USB converter to play off a hard drive, why not look at a Cambridge Azur640 music server?

It can live in your listening room, and replace your current CDP. It's got a much better power supply and bigger HD than the Mini, is expandable and can be networked to your PC or other music servers.
Thanks, hadn't really thought about the music server option. Although, with the MAC, you can run front row software, which may be an advantage (as well as the ability to web surf, etc). I will have to take a look the pricing of a MAC + (USB converter to DAC)/or USB DAC vs. the music server option. Thanks. I guess the Cambridge may be a catch all, but the MAC may allow me some more flexibility down the road.
I have to second Ckorody on this one. I believe the Squeezebox modified would be the best bet. You cannot believe the difference it makes putting some quality parts inside that thing. Also it allows flexiblity in terms of storage and backing up. My friend already has two 250g harddrives full which already alot more that the music server mentioned. The Squeezebox can be a made to sound quite a bit better than your arcam player if you just get it modified and change the power supply from a switching to linear. Getting the analog mod from either bolder or redwine will cost you around 300 dollars... a decent dac will cost atleast 500 and up. Give the Squeeze a chance pal.

I haven't seen any option as elegant as Apples Front Row and Itunes for surfing through your music. The new mini evern comes with a remote. A mini in your stack with Toslink out to a good DAC should be as good or better than your CD73. I am no jitter expert but in my experience with a Mac, toslink out of my Airport Express into a Quad 99CDP2, (CD player which has digital inputs) sounds as good as the Quad on it's own as a CD player. The modded Squeezebox may be good as well but it's not as elegant as the mini setup. Be aware that selling modded gear is sort of like selling a modded Civic, you will never get your money out of it. I would skip the music server idea, it leaves you no flexibility to add more music once the smallish hard drive is full.
If you have a DAC with only coax input, what options do you have if your source is Toslink out? There are converters (adapters?), but I have to wonder what sort of compromises that route entails.
"I would skip the music server idea, it leaves you no flexibility to add more music once the smallish hard drive is full."

Etep29- Wrong! Cambridge Azur640's HD is twice as large as the Mac Mini's, and just like the Mini, you can add additional HDs or network the Cambridge Azur640 to other music files. I like the idea of the Mini, but I doubt the sound quality will equal the Cambridge without some mods to it's SMPS and optical output. Plus, it needs to be connect to DAC and what about a display?

What is the source of your information that the optical digital output of Macs have high jitter? Does this claim hold true with the new Intel-powered Mac Mini?

A long time Mac user on the TacTHackers forum reports his G5s used music servers have jitter too high for audiophile use. He recommends using an outboard AES/EBU Lynx Studio Technology AES16 locked to external Antelope Audio OCX 11 MHz super clock. He finds this combo equals the sound quality of his Wadia 270 transport.

Both he and I haven't tried the Intel-powered Mac Mini, but if the optical output on a G5 isn't up to audiophile standards, why should anyone expect Mac to include a better circuit on their low priced Mini?