Don't know your price range, but the Empirical Audio Off Ramp is an excellent USB to S/PDIF converter.
My first thought is that if your DAC Magic is bettering the Hiface/Audionote combo you might have a problem somewhere.
The DAC magic is not known to have great USB interface (I am assuming here). I'd look into it. The Hiface/Audionote ought to trounce the DACMagic.
Empirical Audio, Wavelength USB>SPDIF, Audiophileo, Weiss Int 202 are all good SPDIF converters.
The M2Tech HiFace is a very good converter. In my system, using it with a Mac Mini/Pure Music into a Modwright Transporter (as a DAC), the resulting sound is as high fidelity as my Esoteric UX-3Pi.
That yours sounds "am radio like" indicates a possible problem either with set-up (the most likely cause, IMO) or a faulty HiFace.
A couple things to check:
1) Apple Midi configured with HiFace as the output device, and at the highest sampling rate supported by your DAC, and no higher.
2) Sampling rate configured for the HiFace in Pure Music set to the correct sampling rate for your DAC.
There are quite a few settings to get correct in Pure Music to get it performing optimally. It wasn't all readily apparent to me without carefully studying the PM user manual and reading a few threads about Pure Music.
Yes, Pure Music smokes straight iTunes, why aren't you using it into the hiFace? It does work with it FWIW. Tvad is onto something, but is incorrect. PM like to choose the device itself. Your output in settings should be "built in", and then set the audio out via PM to the hiFace AFTER- I repeat AFTER you have set the hiFace to use HOG mode. It seems counter intuitive, but that is how it is done. If a device is already selected, HOG mode is not allowed.
Hit reset and you should be good to go. One really should read the entire manual. Unlike many programs, there is hidden stuff in the manual that you will not discover readily w/o it.
I do not care for upsampling, but like "Less is More" and memory play if you have enough RAM.
01-20-11: LadavidI had the same problem. In my case, it turned out not to be an issue with Pure Music per se, but rather a mistake I had made in the configuration of the output sampling rate in Pure Music's Advance Audio Setup. I had set the output sampling rate and limit rate too high for the capabilities of my DAC, which is 96Khz maximum. I had set Pure Music for 192Khz. When I made the correction to 96Khz, I finally had sound.
Don't know if this is the same problem for you, but it's something to check...and something I mentioned in my first post.
I will admit getting things to work properly was a several day adventure for me that was unpleasant at best, so I can empathize with you.