On USB Audio and DACs

I'm not sure I understand the point of your question, but in general the source of the digital feed does not matter.
That depends on what you are trying to do. But which DAC you use is about the least significant decision you will make in building your system. Even really cheap DACs are sonically transparent these days.

I don't think your iPod can output USB, without some specialized hardware. But you can easily use an analog connection from its earphone jack to a line input on a receiver or amp. Given the quality of the DACs used in iPods, that should give you quality equivalent to a CD player—assuming the files on your iPod are CD-quality. If they're 128 kbps MP3s, then you won't get CD quality.

So, no, you don't need a CD player. Get a CD player if that will be convenient for you. (Note that anything that takes silver disks will play CDs. I use a DVD player.)

A lot depends on your budget. If you're trying to put something together for a few hundred bucks, then your options are really limited anyway. If it's a few thousand, there are myriad possibilities.

Yep. Difference between closed source and open source.

I'm in the process of trying to make a decision as well. Do I get a DAC or a PrePro? I have 3 computers and and Asus TF700T tablet, all of which have HDMI out. My monitor had HDMI in. I can get a PrePro and connect all 4 devices to it and split the video to the monitor and the audio to the preamp out and into my powered monitors. HDMI will have timing issues with audio but the PrePro is supposed to handle that. The PrePro would also allow me to connect analog sources to it too. The PrePro would NOT support USB Audio but WOULD support BD Audio up to 7.1 24/96 if I ever had the hankering to put more speakers in my computer room.

I could get a DAC and be able to push Class 2 USB Audio to the speakers from the three computers and tablet but I won't have any options for analog sources.

Seems like I might end up doing BOTH, which would only cost me $900 tops.

To bypass and iPod's DAC you would need either an Syferlabs algorithm solo, Fostex HP-P1 or in the non portable category something like the HRT istreamer (some CD player's like the Marantz CD6004 and SA8004, and most receivers now adays will also do this with a USB to iPod connection).

If you then connected the outs from that to an amp and HAVE YOUR FILES ON YOUR IPOD LOSSLESS, at least 16bit,44.1khz (Apple lossless or FLAC or WAV), with your EQ off, it will generally be the same as connecting a CD player to the amp.

If your files are lossless CD quality, you're most of the way there, no matter what DAC you use. All things being equal, you want to do the D/A conversion as close to the speakers as you can, but as long as you keep the music lossless and avoid converting back and forth between digital and analog in the chain, you'll be fine. For computer audio, a good setup will be:

Mac --> Optical out --> Receiver --> Speakers
or
Mac --> HDMI out --> Receiver --> Speakers
or
Mac --> USB --> USB DAC --> Analog line out --> Receiver --> Speakers

That said, this setup is going to give you very good results too:

Ipod --> analog line out --> Receiver --> Speakers

The ipod/iphone DAC is actually quite good; the key is to bypass the internal headphone amp and just send a clean line-out signal (from the dock connector or dock connector/line out adapter) to the receiver.

Another option is an airplay receiver, which lets you use a wifi enabled mac, ipod or iphone to send the CD quality file directly to the receiver wirelessly. The airplay protocol actually upsamples the signal to 48khz/16bit, but since the new sampling rate is actually higher quality than a 44.1khz/16bit lossless CD rip, it can be considered effectively lossless even though its not technically lossless. Setup is very simple:

ipod/mac ))) wifi base station ))) receiver --> speakers.

and if you don't want to spring for an airplay AVR, you can also add airplay with a $100 airport express, which is a wifi base station with analog and optical audio out

ipod/mac ))) airport express --> optical out --> receiver --> speakers.

Good luck!