Modify an SB3 or use an outboard DAC?

I think you leave yourself with more future possiblities if you go with the external DAC...what you could do is upgrade the digital out on the Squeezebox to get the most out of the player before sending the signal down the path.

I have a Bolder Cable modded SB2. I can say that the full analog mod with the platinum and gen2 sonocaps is pretty good. I guess it depends on if you want to "upgrade" in the future. Going with an outboard Dac you can upgrade whenever the bug bites. Bolder also offers a digital mod and I highly recommend getting rid of the switching power supply.

Good luck,