I installed the Soundcheck Toolbox 3.0, which is free and easy enough even for someone like me who does not work in IT. Nice improvement. I'm sure the improvement would be even larger if I had an external DAC, which I don't yet.
One additional tweak, suggested by Soundcheck, was to disable wifi on the Touch and instead use a wifi bridge connected to the Touch through ethernet.
Anyway, I would go from stock Touch to DAC first and then see if you itch for tweaks, and evaluate the impact.
If you decide to go for toslink, make sure you are getting a glass "cable" instead of a plastic one.
Let us know what you do and how it turns out.
One additional tweak, suggested by Soundcheck, was to disable wifi on the Touch and instead use a wifi bridge connected to the Touch through ethernet.
Anyway, I would go from stock Touch to DAC first and then see if you itch for tweaks, and evaluate the impact.
If you decide to go for toslink, make sure you are getting a glass "cable" instead of a plastic one.
Let us know what you do and how it turns out.