I'm fairly certain that most audio cards will convert, mix and then output in digital on the spdif.

You might want to try to abx a few FLACS with the CD. I use a creative labs X-FI and even with all the effects/equalization etc disabled it doesn't sound as good as through my stereo (listening to both via ES500 IEM's.)

As far as the DAC is concerned, I think if you used the digital out on a sqeezebox, it would be bypassing the DAC in the sqeezebox and relying on the one in your receiver. I suppose that might warrant an ABX test to see which DAC you like better (assuming there is an audible difference).