Using an external DAC with Apple TV

How is the sound quality using the Apple TV connected to a home audio system? Is anyone using an external DAC with the Apple TV to up-sample the audio?

The onboard AppleTV DAC will only be used to output analogue audio via the stereo jacks - HDMI or optical out will use the DACs in the TV/processor/receiver anuyway.
Stereo audio files are converted to a PCM bitstream (which will not use a DAC) for output via optical.
Personally I think even lossy MP3/AAC sounds great via optical from AppleTV. My Yamaha DSP won't upsample the PCM bitstream, but frankly upsampling audio isn't going to bring huge sonic benefits as it's only interpolating what isn't there isn't the first place. Granted opinions differ on whether upsampling makes things sound better or not, but you can't reproduce perfectly information you don't have , the interpolation will only be guesswork.
You may want to look at the 2 links here, which are along the lines of using AppleTV and Airport Express in hi-fi setups:
http://discussions.apple.com/thread.jspa?messageID=7330045&#7330045

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