The volume control in most DAC's is indeed implemented in the digital domain and, therefore when adjusted down, bits are lost AND so is sound quality. This is a fact of digital volume controls. In other words, reducing a DAC's volume causes bits to be dropped resulting in reduced sound quality.
As an experiment, I discovered that my 2nd DAC sounded better than my first DAC both going direct to my power amplifier. My assumption is DAC #1 was dropping more digital bits then DAC #2 causing the sound quality differences. Based on this experiment, I am now considering using a pre-amp.
I also continue to believe that everyone has a different opinion on going either direct to a power amplifier or using a pre-amplifier. I believe these differences are because we all hear differently and different equipment sounds different in different conditions.
As an experiment, I discovered that my 2nd DAC sounded better than my first DAC both going direct to my power amplifier. My assumption is DAC #1 was dropping more digital bits then DAC #2 causing the sound quality differences. Based on this experiment, I am now considering using a pre-amp.
I also continue to believe that everyone has a different opinion on going either direct to a power amplifier or using a pre-amplifier. I believe these differences are because we all hear differently and different equipment sounds different in different conditions.