Confusion with amps/DACs

welcome to head-fi, sorry about your wallet! I would get the amp first. This is because if you got the external DAC like the microDAC, you'd still need to stick the analog output into something, and what would that be? So get the M3 done first, then work on the source. And you will want to work on it- the chaintech card's DAC probably isn't up to snuff, but you can use the chaintech for bit perfect digital out into an external DAC in the future.

Amplifier and DAC are two different things.

From my understanding, the music goes through the following path:

Data -> Transport -> DAC -> Amp -> Headphones (add interconnects in between as necessary).

The first 3 are usually called the source. The data starts as either CD or music file, which gets decoded into digital information. The transport does the decoding, and moves the digital information to the DAC (digital analog converter), which converts the digital info to analog. This is then passed to some kind of amplifier, which in mp3 players and some sound cards is integrated, although you can also pass it to an external amplifier (this is more common at head-fi). The function of the amplifier is to amplify the signal - I forgot exactly what parts get amplified, although I'm fairly sure voltage is one. The amplifier passes the amplified signal to the headphone which takes care of things.

Now, you are using Chaintech AV710 as your transport and DAC (well, not sure about transport but certain about DAC). It has a bit perfect digital out (what lets you pass info to an external DAC), meaning that the Emu1212m's digital out is not significantly better than the AV710, except possibly in terms of jitter which is much debatable but this is not hydrogenaudio so I will just say that the difference in digital outs is minor compared to other components. As such, you should either get Emu1212m or Headroom DAC, but not both, as the main reason to upgrade is for superior digital/analog conversion, and having both does not give you significant boost over having one. Or at least not significant enough boost to justify spending $ on this over your amplifier.

To skip to the end of all this I think you'll probably get more benefit from putting an amplifier between your soundcard and your headphones, than from upgrading your soundcard. This is because the Chaintech AV710 doesn't have an integrated amplifier even, so the line out from it will suck for driving HD600.