Processor as a DAC for music?

It works with a good HT preamp but you may get marginally better performance out of a good DAC feeding analog to the HT processor instead of digital. It all depends on the level of interface jitter you happen to be getting and how the HT processor deals with it - something that I think is very hard to predict and may be individual setup specific (do you have a power conditioner or what else is plugged in to the same sockets for example). My recommendation would be to get an HT processor with all the functions and flexibility you need to enjoy movies but with a high quality "analog direct" option and then A/B compare the HT DAC against a standalone DAC feeding the HT analog (and return the DAC if there is no benefit). This is simple to do if you are able to find an HT preamp/processor that has a remote and will allow you to level match SPL's precisely - just flick back and forth from the listening position.

I appreciate the feedback however I was looking at it from the standpoint that many of the more expensive HT pre/pro had better two channel preamps in the $500-1000 used range than the same price point in something that was 2 channel only.

Good thinking. The obsolescence of the multiple standards for HT mean you can find bargains - high quality amps with great components (Crystal volume contro, Burr Browns, a decent 24/196 DAC etc.) all for a very good price. The only draw back of a multi-channel amp is that you generally get lower channel separation specs but don't let this worry you - it is no biggie IMHO.