One of my first upgrades was to add an MSB Link DAC to the Sony S300 DVD player. It was my first taste of "high-end" audio. From there I went through four more iterations of the digital front-end: MSB Link/McCormack transport, Roksan Caspian CD Player, MSB Link/Aiwa changer, and Sony C333ES SACD player. The SACD player is the most musically satisfiying player of all those I tried. You can find them for around $500. It's a little more than your budget. But having owned the same model DVD player and used it with an external DAC I think the SACD player is worth the extra $.
Help with decision...New CDP or add DAC to DVD?
My old 16 bit CDP just doesn't cut the mustard any more. I'd appreciate advise on whether to buy a new CDP versus simply adding a good DAC to my Sony DVP-s300 DVD player via digital coax. The latter would sure simplify things. Budget in either case is around $400. I've read somewhere that DVD laser heads can't really get the most from audio CDs...is that true? The rest of my system is simple; Parasound receiver and Vandersteen 3A speakers.