This is a response your wallet may not want you to read...
Yes, the DAC in the Squeezebox V3 is decent - it's a Burr Brown, although I don't recall which one in particular. I enjoyed my Squeezebox for months and months until the dreaded day when on a lark I started reading up on what the big friggin' deal with DACs was. Eventually I came across the Channel Islands Audio VDA2, and bought one from Music Direct. The rest is sweet musical history.
To my ears, there's no comparison. Cleaner, blacker, sweeter, all sense of veil lifted from the music. Very recently, I sent the DAC back to Dusty to have it upgraded and started listening to the Squeezebox and my Denon DVD-2900, both using its respective DACs, with its analog outs feeding my headphone amp.
Man, those were a looonngg few days that I had to wait for the DAC to return. The sound just sucked! Right away I knew something was just... wrong, just blah! The DAC came back, and all was right with the world again.
I say just buy it. Go to MusicDirect.com and buy it - they have a 30 day return policy if it doesn't float your boat. In my case, it became the irreplaceable soul of my system - nothing else (other than speakers / headphones of course) in my audio chain makes more of a difference.