The Creek OBH-14 DAC is a good choice for making a cheapo DVD player sound tolerable in my experience. It has a volume control so you can run it directly into an amp, but it also has fixed level outputs for a preamp. Nice sound for the low bucks involved.
If you do wind up with an external DAC, I would definitely use it for movies too. Just set the DVD player's digital output to convert DD and DTS to PCM.
If you do wind up with an external DAC, I would definitely use it for movies too. Just set the DVD player's digital output to convert DD and DTS to PCM.