Best DAC for under $500

Do a search on the EVS millennium DAC 1. It would be in your budget.

A modified ART DIO - Outstanding!

I second the EVS if you can find one. No matter the brand, you'll be better off buying used in that price range (or have a cheap one modified, like Jeffga suggests).

Also highly recommended in used, if you can find one: Muse Model 2+ DAC. It will likely be a bit more than $500, but make sure to get the plus version which is HDCD compatible and outperforms the straight model 2 (not a bad DAC either I'm told, and can be had for less than $500 used). Disclaimer: I am currently selling my Muse rig to raise some money, but am not splitting it up so this is not quite as self-serving as it sounds! It is an outstanding rig in both my systems.

Marco

I'll third the EVS Millennium DAC. Top notch parts quality and implementation at a ridiculously low price. Transparency and dynamics in spades. Disclaimer: I've got one but won't sell it, so this isn't self-serving at all. Best of luck.

What transport are you using?

The Ack dAck is an extremely musical DAC that belies it's low price. Mine transformed my system with an utterly intoxicating sound. CD's sound so good I need to upgrade my vinyl rig to get it to catch up. All the good things you've read on this unit in AA are true. It's the one to beat.

Viggen, I've got a Marantz CDR-500. Uses the Philips VAM 12.5 mechanism. Same as the $3,000 Cary 303/100.

Meridian 563

I personally really love my Nixon DAC which sells for $250 new. However, it is a bit cosmetically challenged. But, it is super small, so you can hide it. I am not at all familiar with your transport. However, from what I gathered from various posts on AA and AC, the Dack! does a phenomenol job but performs better in systems that are on the euphoric side. Whereas, the Nixon does better in more neutral systems.

I used to have the 563, and I don't think that DAC can touch either the Nixon and Dack. I used to have the CI DAC too with the VAC upgrade. That was a pretty good DAC, but I personally prefer the sonic characteristic of the Nixon better perhaps because it lacks digital filters. However, if you don't like laid back sounding DACs, perhaps the CI is better for you.

used Perpetual P-3A for ~$450 !
Check the stereophile review http://www.stereophile.com/printarchives.cgi?455
you'll know why.