computer + amp = dac/soundcard needed?

I consider myself an audiophile in that I want to get the absolute best sound possible from hi res music files stored in several lossless formats (wav, flac,etc.) on my pc, and play them through a home audio system, without breaking the bank. My first assumption is that you're pursuing high quality "stereo" 2 channel audio and not necessarily interested in 5.1, 7.1 surround sound for watching movies or for gaming. My second assumption is that you're only wanting to spend a "reasonable" amount and that you'll be using your existing home theater receiver or a power amplifier/control amplifier setup. I say "reasonable" because in the audiophile world, there literally is no end in the amount you can spend on chasing the perfect 2 channel stereo system ($50,000 or more for a two channel amplifier, the same amount for just a pair of speakers, throw in another $20,000 for a really good DAC, another $10,000 on the cables needed to connect the equipment together, it gets crazy, as you might already know).

I've tried many different setups over the last ten years or so and found that a dedicated sound card with SPDIF out is the essential first step. For starters, the integrated sound from the motherboard (and I mean ANY motherboard) will need to be bypassed as it provides the poorest quality sound that will fill your listening area full of noise, distortion and hiss. I've tried a few sound cards from Asus, Creative, and M-Audio, but in my experience, the Asus XONAR Essence STX is hands down the champ for the best sound card out there. I use the SPDIF out connection of the sound card, to the coax digital input an external DAC. You can have the soundcard do the digital to analog conversion (DAC) as an option if you'd like, and connect the sound card using RCA left/right output to your amps analog RCA inputs, but the DA conversion process isn't quite as good as it could be. Having the soundcard do the DA conversion will be leaps and bounds above the sound output coming directly off the integrated motherboard with analog connection to your stereo rig via RCA left/right cables. But my experience has shown even better results by using the Asus soundcard, and it's SPDIF Out (the audio signal is still in digital form because we've bypassed the soundcards DAC) and connecting it to a decent quality, reasonably priced external DAC (by reasonable, I'm talking $500, not $50,000 for a DAC) using a digital connection to the DACs coax digital input. I let the external DAC do the conversion of the digital signal to the analog one that can be played on your amp using RCA left/right connections from the DAC to your amp.

You can certainly have your 5.1/7.1 home theater receiver do the digital to analog conversion function by connecting the SPDIF Out from your PC to your receiver, but even the highest of top end home theater receivers from (Onkyo, Pioneer Elite, Denon, Marantz, etc) don't perform the digital to analog conversion as well as a decent external DAC (that's why those same companies also produce external DACs). The bottom line is you have a lot of options, and you can scale them. But I'd highly recommend that you try the Asus XONAR Essence soundcard as your first step.