Newbie question regarding DAC...

I should list my equipment first to get a more accurate answer:
1. Pair of Klipsch RF6 Reference speakers.
2. Pair of Definitive Technology Studio Monitor 65's.
3. One Definitive Technology Pro 2000 center speaker.
4. One Power Sound Audio down firing sealed Subwoofer with built in 750w RMS Amp.
5. One Emotiva XPA5 integrated Amp.
6. One Yamaha RX-V863 Receiver with full set of Pre-outs (Not using this Receivers Amp, just my nice quality RCA jacks to the Emotiva Amp.)
7. An Oppo BDP 103 CD - Biuray player for sound source.

I'm using a Dolby Optical line from the Oppo unit to my Yamaha. Out from the Yamaha's pre-outs to the Emotiva XPA-5 RCA inputs.

I keep my Yammy set to it's 7 channel stereo setting. This is because all my speakers are spaced apart in a forward facing position because I don't use movie surround. This positioning and setting sounds best with my CD and Pandora for music only.

Given this set up and configuration am I not realizing an all analog signal or is my Yammy converting that optical sound source from my Oppo 103 to Analog? If not, would it be wise to add a DAC unit so that I could go out of my Oppo player to a DAC using Optical input from Oppo to the DAC, then optical out from the DAC which would convert the Multichannel digital signal to pure Analog to my Yammy receiver, thus giving me Analog signal out of Yammy receiver to my Amp and all my speakers?

I can not go out of my Oppo 103 with all separate RCA because it does not provide enough RCA outputs to plug in my Yamaha receiver in order to run Analog to all my speakers. Hence my utilization of the Dolby Digital line.

Best I can explain it... So question is will a DAC do this Analog conversion task in Stereo mode to my Yamaha to provide all Analog output to my Amp?
Something sounds amiss here?
1-The 103 has 7.1 channel outputs.
2-The XPA5 is only 5 channels (are you using 2 from the yamaha?)
3-The Oppo should sound better than the yamaha's processing.
4-After listening to CD's through the Oppo/Emotiva, Pandora should sound lousy.
5-You only list 5 speakers, why are you using 7 channel mode?
6-Any 2 channel dac will only put out 2 would end up using some sort of matrix decoding to get more channels.

My Opinion: Take the Yamaha out of the equation and try the Oppo directly to the XPA5 amp. The Oppo volume control is actually quite nice. If you need more control I would still suggest you scrap the Yamaha and look at the Emotiva UMC200 pre/pro. In my opinion (as an owner of both oppo & emotiva gear).
I agree with Elevick - the Oppo directly into the XPA-5 should sound terrific. I did the same thing with an Oppo BDP-93 into an XPA-5 and it sounded terrific!

Or, if you can afford it ($1999), get the Emotiva XMC-1 7.2 preprocessor with Dirac Room Correction. This will give you a *very* high-quality multichannel system...
I'm a little confused to. The Yamaha does have a 5.1 channel input on the back of it so you could run the analog cables to that. I would go back and forth between the digital input you are using and the analog to decide which you prefer. The Yammy has Burr-Brown 192kHz/24-bit DACs built into it, which aren't bad and probably very equivalent to what is in the 103.

As stated, you could run the Oppo straight to your amp and try that. It would bypass anything the Yamaha is doing and might be a little better.
I agree with the statements above. At this entry level a dedicated computer with external drive and a Audioquest Dragon Fly DAC/headphone amp downloading any CDs and streaming bought HD stored files would give you a better glimpse at the hi end.

No offense but loose the Klipsch
Also loose the Yamaha. You say you do not listen to movies. Then run 2.1 for stereo sound

Stereo stills rules when it comes to music

The surround sound crap should be ONLY for movies