Will a DAC drastically improve Apple TV?

I have just inserted a Cambridge DACMagic DAC in between my 160G Apple TV and the analog inputs to my Pioneer Elite VSX-82 receiver. My cables are an older Monster high grade toslink cable and a pair of Harmonic Technology Truth Links and I am astonished at the results I am getting after three days of burn-in.

I play Apple ALAC files that have been synched to the Apple TV hard drive and I am very happy with what I am hearing. The sound quality exceeds what I was hearing from Redbook CD's played on my Sony ES 999 CD player

Also check this thread on Audio Circle: http://www.audiocircle.com/circles/index.php?topic=64609

I have the 160 GB Apple TV. 400 CD's is about 120GB in Apple Lossless. I have a Naim Supernait which has a built in DAC. I am very pleased with this combination. The Apple TV combination also compares favourably with the Naim CD5x which in case you don't know is a $3400 CD player. So in summary the Apple TV works well as a media player. I just hope they make a version that has a bigger hard drive.

For the level of gear you are using it is nuts that you are playing back compressed Mp3 files. You need to re-rip your collection to Apple Lossless with error correction turned on. This will make a bigger improvement than any gear you buy. After that, yeah a DAC makes it a lot better for sure and would be well worth it.

I have an Apple TV hooked into the digital inputs of my Krell S-1000. Overall, I have been very pleased with the sound. But, even at that, the sound quality of podcasts can vary greatly from podcast to podcast.

I do think you will get better results going digital. But you may still have anomalies occasionally.

I second the idea of getting the 160 GB version. I have the 40 GB version and it gets filled up awfully fast. Especially video. I find myself offloading most stuff to my HTPC.

I once had a Bel Canto Dac1, and its sound was fantastic, far better than an Apple TV's analog outputs. I'd say that a Dac2 is a very safe bet to be noticeably better than no dac at all. It'll also hold its resale value.

FYI, the Bel Canto is a bit on the smooth side of things, which is usually a good fit with low-grade digital sources.

I just recently added an Apple TV to my system and a PS Audio Digital Link III with level IV Cullen mod both connected with an Audioquest Optilink 5 toslink cable. I have been really surprised with the sonic results. I would say the combination has been on par with the Ayre CX-7e CD player it replaced with maybe not quite as much bass articulation but definitely very detailed. Spatial resolution is also pretty darn close to the Ayre.

I will add though that I saved all my CD's as Apple Lossless files, not MP3 so I would be suspicious that part of the problem may be the compressed audio files you are using. It's been a while since I have listened to MP3 files in my system and I certainly wouldn't describe them as grossly distorted but they were lacking in ultimate sound quality. I would think also that even if you use MP3 files that a dedicated external D/A converter can only help matters as compared to the internal D/A's in the Apple devices, although I have not listened to the analog outputs of the Apple TV to compare.

I say give it a shot. Use the Apple TV with the analog outputs and if you are not crazy about the sound explore getting an external D/A converter. I don't think the Apple TV will be the weak link used as a digital transport.

If you are going to use an Apple TV you will probably want to get the 160 gb version. I have saved roughly 320 CD's in Apple Lossless and it has taken up apx. 95 gb. If you have wi-fi you may want to also consider using an iPod touch with the remote application. It allows you to navigate the apple tv without having to have a monitor or TV on. I love this feature

Farjamed,
The difference is significant and for the better. Get the DAC. Can't you get a Benchmark DAC1 for the price of a Bel Canto DAC2? I'd get the Benchmark.
When I added a DAC, a cheap one, it made a huge difference. And the sound I was getting from the ATV analog outputs was not horrible.