You seem to be turning the mechanics of this around. The iriver is not the source...the external DAC is when using the iriver's optical out to it. The iriver is holding the sheet music...but the DAC actually does the singing. The sound from an iriver WILL improve with upgraded DACs.
You say *anything* can be used that generates a digital output.....are you aware of any other high capacity devices the size of the iriver that can be used as a transport? Other than some old Archos models with spdif...they don't exist. That's the thing that makes the iriver special.
I agree with some of your other points. We've been talking about 'absolute' sound quality here...but how much PITA does someone need to go through to beat the imod? I have nothing against the imod...and would readily choose one to achieve a great performance to portability ratio.
Everyone's different, but at this point optimum sound quality and not ultra portability is my preference. I'm using H140--->MircoDAC--->SR71--->RS-1's and to date it's proven to be the best sound I can achieve in a relatively small transportable footprint.
Anything that plugs into the DAC/Amp combo has equivalent output because it is just ones and zeros. Laptops (transportable), PCDPs, iRivers, etc.
Can an iRiver rig beat an iMod SQ? depends on the DAC/Amp. Can it be portable? perhaps with the D1. Can it be transportable, yes. Can it beat the iMod in storage capacity, no. Can it beat it in support, no, it's not even in production anymore. These are *all* valid views/concerns.
Beating the iMod is a subjective thing based on the users requirements. For some people it is not even in the ballpark, for others such as yourself, it beats it hands down. I have no qualms with that. You haven't caught me saying the iRiver is crappy, nor have I ever claimed that the iMod 'will *always* be better'. It 'depends' on the requirements and it depends on the rig and it is as simple as that. Nothing is absolute.