I still think you need a different CD player to play HDCDs, I don't think getting a new DAC will allow your Parasound to transport the HDCD signal. The transport first has to decode the digital compression of the HDCD file on the disc, then send that signal to the DAC to be converted to analog. It is the transport that will grab the HDCD bits and bytes, not the DAC.
Getting the signal from a disc transport to the DAC is a matter of some debate. General consensus is that optical is not a great way to do it. Digital coax is the preferred method, if you are using wires. Get a decent cable (spend some $$$) and make sure it is at least 5 feet long, from what I've read shorter digital cables create internal bounce-back reflections that affect sound quality. You can also get into the impedence ratings of the cables vs. the connectors vs. the DACs internal circuitry, but these discussions go over my head.
There are also products out there that you can place between your DAC and your transport, these are called re-clockers. These products, like the Pace Car, can convert the signal from one format to another, like optical to digital coax, or USB to digital coax, and they also apply new timing to the signal, removing any timing errors that are produced by your transport. These products can drastically improve the sound, some would say they are more important than the DAC.
In my research I have to say that the Benchmark DAC1 or DAC USB is probably the 800 pound gorilla around the $1000 price point. It re-clocks the signal and does a decent job.
I have also read several posts by folks in the know that say SACD and HDCD recordings have good and bad quality, just like some Redbook CDs have good and bad recording quality. If I were you I'd spend the dough on the DAC, the cable, and a good re-clocker, that will raise the quality of your Redbook collection to heavenly levels. And you don't wind up re-buying all your music in a different format!
