Where does the DAC go?

The internal DAC in a ROKU is like the one in an iPod in that it's cheap. If you're using any streaming media player for music into a hi-fi, then you will improve the sound by plugging the player into a half-decent external DAC.

The player requires a digital output to do this.

Then the DACs analog outputs connect to an input in your hi-fi.

I use a Cambridge DACMagic for my Apple TV and I'm quite happy with it. It goes for about $400.

It goes between the player and the amp.

Complex answers to simple questions is what makes audiophiles amusing to the general population.