Will a DAC drastically improve Apple TV?

I have been thinking of getting the apple tv so i can have my entire itunes collection available for play through my new audio system. Problem is, i have connected my ipod through an rca cable to my system and it sounds terrible. I have connected my laptop and certain tracks sound ok, others, terrible. very muddled, no detail, and no bass. Will a dac such as the bel canto dac 2 make a dramatic improvement with mp3 playback (192-256kps)? Also, the Tos link, is the optical link that would work with the apple tv right?

I am new to all this stuff. Just recently bought a mcintosh 6450 integrated, and a pair of gallo 3.1s. Was thinking of getting a hard disk player such as the mcintosh ms300 but probably not for a while. And if the apple tv with a dac will sound pretty good, that may be the easier route.