DAC as an upgrade

Mapman - Many DACs these days have built in jitter reduction circuitry allowing to use anything as a transport. I use Benchmark DAC1 with sony DVD player using 75 Ohm coax. Toslink connects my TV to Benchmark and I have still have one more unused digital input left. Since Benchmark has volume control I have it connected directly to power amp. This arrangement allows me not only to listen to TV but also to DVD, play MP3 (inherent in DVD players) and eliminate preamp+ICs. If you decide to built your own coax use quality cable like Canare, keep distance to minimum and obtain 75Ohm RCA connector (standard are not). Most likely you will have RCA on one side and BNC on another.
Check also Bel Canto DACs - warmer presentation (not to my taste).

Be careful with used DACs. Old Benchmarks had worse op-amps and other problems. Many companies like Benchmark and I am sure Bel Canto offer free trial at home (30 days in case of Benchmark) - you like it you keep it - if not send it back. Difference will be dramatic in my opinion - there is even huge difference between different DACs. My main objective at the beginning was to be independent of the transport (mechanical component) and the same time DVD players have excellent tracking. Sonic benefits I realized later.

Mapman - external DACs can play pretty much anything in up to 24bit/192kHz delivered by SPDIF or USB (Benchmark). CDs might be replaced in future by downloads to hard drive bypassing unforunate redbook CD format with limitation of 44kHz carrier. Many DVD players can also play Audio DVD and SACD (converted to SPDIF) and even HDCD. External DAC opens many possibilities and makes you independant from transport/source. Quality of dedicated external DAC is higher - just show me CD player with measured -140dB signal to noise ratio (Benchmark).

Most of CD players use mute clamping circuit on the output (to mute gaps) that is affecting sound quality. External DACs do in digital processing.