Do I need a new Soundcard or a new DAC, or is everything OK?

Coax vs optical is a moot argument in terms of quality. There really is no difference. The differences you'll find are in practical uses and price. Coax ius much cheaper, and you probably already have 12973102739021 suitable cables around the house for it. Any 75 ohm RCA cable (typically used for video) is suitable. They are also more robust then optical, they can take a pretty good beating. The connection itself is also much better, as it's harder to pull out,a nd can be bent a lot without much damage.

Optical is better for long lengths as it doesn't pick up interference.

I'm not sure if the Audigy 2 can do bit perfect playback, but if it can you won't see any improvement by upgrading. The card itself is doing no alteration to the data, it's outputting a digital signal which should be perfectly matched to the original song file when it is received by your DAC.

If the Audigy 2 can't do bit perfect you should consider picking up an AV-710. They're like $20, and even if you can't notice a difference in sound between bit perfect and non-bit perfect, it'd be good to at least have the capability if you ever need it in the future.

You might want to consider investing in a better toslink cable. I originally had a plastic toslink that I got from monoprice.com. I then upgraded to a much nicer GLASS toslink and it certainly made a difference. Better details and dynamics...in short, it was as if someone removed a veil and the sound came thru. You can typically pick one up for around $50. FWIW, I use the AV710 and Kernel Streaming.

I have an Audigy 2 ZS and it isn't bit perfect. It resamples everything to 48k and it has a bad resampler. I have tried connecting it to my Stello and it doesn't sound as good as using USB. However, some people recommend resampling to 48k using a good resampler in foobar which is supposed to bypass the resampling done in the Audigy. I tried it and it sounded a bit better, perhaps you should try it and see if you like it.

Regards,
Diego

Aren't all creative cards locked at 48 KHz for digital? Or is that just pre X-Fi?

I personally dislike the X-FI for music. Unless you're using digital out to an external DAC, don't bother. I found the analog outputs to be rather disappointing.

Other sound cards support EAX to some degree. Hell, my Auzentech card supports EAX better then my X-Fi...I always had to keep EAX off since it caused popping during games.

I do believe there are some people here who have modded their X-Fi for much better quality. It's probably a lot of work, and it certainly voids the warranty... There is also an Auzentech card that uses teh X-Fi chip. This equates to the great analog audio quality Auzentech cards are known for, plus full EAX support, as well as CMSS and Crystallizer.

Might be worth it to check out, if you plan on buying a new card.

X-Fi would be a good choice if you're going to be listening to music via the digital out. I assume you're going to be using your speakers for gaming, and the X-Fi is also a great choice for that. The analog out may be so-so for music, but for gaming quality isn't as important as some of the environmental effects that the X-Fi's offer.

I don't believe they are worse, although I mainly used digital when using Audigy's. All in all I imagine the X-Fi is probably quite a bit better.

Here is the Auzentech card I was talking about:

Auzen Prelude

Nice thing about this is better analog quality, no need for extension to use optical or coaxial digital, and it's just as good as the Creative cards for gaming.

It's also capable of real time encoding of many surround sound formats, which is nice for movies. Creative cards also can't do that.

Yes, get another card and use coax SPDIF for the DAC. Audigy cards are OK for gaming and MP3s but have a number of limitations for audiophile use.

How does a 'better' cable improve the sound quality of a DIGITAL signal?

Well, if the cable is bad enough it can cause some pretty bad jitter, which can lead to poor stereo imaging, dynamic range and can have a harsh high frequency sound. I've also noticed a lack of bass, although I can't completely blame that on jitter yet (I've yet to see many articles claiming that as a by-product of jitter).

This will only happen, however, with a really cheap cable. And doing a switch from coax back to optical will tell you if your cable is fine or not. Both cables will sound exactly the same when they are working properly.

Also, jitter isn't a cable only issue. When dealing with digital audio it's extremely important to make sure that all devices are operating on the same word clock, and that all these clocks are accurate. This is why many recording studios use dedicated word clocks to control all other devices, so they all get the same exact clock.

Just because digital audio is 1's and 0's doesn't mean that the signal cannot be disturbed when making it's journey. There are a number of ways the data can reach it's destination incorrectly, which can be audibly heard. That being said, in most cause the composition of the cable, or the type of cable used has no effect on the sound quality, like in analog audio. As long as the cable is capable of handling the signal efficiently no audible differences will be heard.