What do I need?

If the Logitec Squeezebox Touch is compatible with your server, it's a no-brainer at under $300. Check with your server's manufacturer to make sure.

I just went through the manual and figured that this DAC is capable of streaming FLAC or any other lossless files from PC or dedicated server.
Price A to price B 'logic' is only found in audiophile communities and certainly OK to neglect in normal and unsolicited world.

FYI, The Emotiva XDA 1 DAC is a very good dac. I had one for 6 months and loved it. When I replaced it with a Wyred DAC 1, I found very little improvement. Certainly not 800.00 worth of better sound.

It makes no sense to buy a $2,500 server (basically a dedicated computer) and run the digital outs through a $200 DAC.

What's wrong with that?

The subject is still unanswered, but certainly DAC should have either capabilities to decode or driver software that you can install to interface with your music server. If these features do not exist then you should consider replacing the DAC for the one with such capabilities such as Cambridge or Wyred4Sound.

It makes no sense to buy a $2,500 server (basically a dedicated computer) and run the digital outs through a $200 DAC. You should either get a server with build in DACs for around $2000 (for example the Olive 4HD) and run it straight into your preamp, or spend a few hundred bucks on a used Mac Mini (2009) or PC, install a half decent server program for $50 and run the USB into your Emotiva DAC. The lattter solution will give you a lot of upgrade possibilities when funds permit. In fact, if you were considering spending $2,500, you could ditch the wyred4sound preamp and emotiva DAC, get the wyred for sound DAC2 and the mac mini as a source and have better sound for less money.

To come to your senses. Forget the computer based server. Stay with the 'real thing'.