Which DAC works best for PS3 and is it posible

Macallan...

View my virtual system for information on my PS3 setup.

I do run a 2-channel setup out to a Cary Xciter DAC. It is impressive. Impressive enough that I started to venture off to other little tweaks versus upgrading speakers and components that weren't necessary. I use the optical output as well. I've found it to be quite resolving. You may have to fiddle with your audio output settings a bit but it will work just fine. And Blu-ray? Holy cow is it impressive, even on two-channel. Just get a quality Toslink cable. For any specific questions on how I set my gear up you can email me.

PS3 color superior to many expensive bluray players???? Lets not believe everything we hear.

The PS3 can downmix multi-channel digital audio to 2 channel and send it out to the DAC of your choice. But in my system, the downmixes generally sound crappy - not the quality of the sound, but the center channel gets so buried in the mix that it can get overwhelmed by other stuff in the mix, and I have to constantly fiddle with the volume. YMMV and all that!

If it has a digital out, then yes you can hook it up to a DAC. As to what DAC, it is a matter of opinion/choice.