Setup for digital/pc based system?

OK I was given a new laptop so I am looking to use my old one as a digital source. Its running XP now with 40 gig hd space. I am only looking to run it thru one system my main setup with lossless files. Right now it just plays with Soundworks pc speakers off the headphone input. I am assuming that to run it thru the audio system I should focus on running it thru USB to a DAC? I have a Cambridge Audio 740C with a DAC I can use on an auxiliary there a way to take the PC signal and put it thru that unit? I would assume it would need to go from the USB to RCA plugs? This is all there a better way?
conceptually you're correct--you want to connect your pc to the cambridge cdp, which would then connect by rca cables to your amp. however, i believe the cambridge only has coax and optical digital inputs for the inboard dac (not usb), so either your computer has an optical out or you'll need to add a pc soundcard with an optical out to connect to the dac in the cambridge. alternastively, you may just buy a usb dac such as the nuforce or hrt and use that instead of the cambridge.
That's not entirely correct. You could buy one of these Behringer UCA-202 or equivalent that converts USB into optical:

Obviously, the optical would feed into your player.