Dcolak, you've had this problem with 3 dacs now, do you get distortion with the output of the Squeezbox or the CD player? What's the rest of your system, it seems strange that you get distortion with 3 dacs. Do you get distortion if you take the PC out of the system and just use the CD player as a transport into the Valab or Gigalab?
BTW, people that have modded their dacs never mentioned hearing clipping before or after modification.
Sources: Nad C541i (SPDIF), Squeezebox (SPDIF), PlayStation3 (SPDIF), PC (USB), PC (M-Audio Revo 5.1 -> SPDIF)
Amplifiers: Trends TA 10.1, NuForce Icon, NAD C370 (have two of them, tried them in mono block mode and in stereo mode)
Speakers: Klipsch RF83, JBL S312II, JBL S38II, Klipsh B3
All those combinations show the distortion (clipping) produced by the DAC.
Where was possible, lowering the volume to approx 60-70% eliminated the clipping with all the "bad" things that come with it. It was not possible to do with the CD player and the PS3.
Eliminating the DAC, of course results in no distortion what so ever, with any of the sources at 100% volume with, of course, the same music / test sounds.