Why do they work with such small buffers? There's no reason, other than to save costs..
My Maverick Audio D1 DAC is unusable on the USB output due to an apparent lack of buffering, as it will actually skip/crackle from time to time. That is what you might expect from a bad or unbuffered digital stream, gaps in the sound. You won't get slightly degraded sound quality. Much like a bad HDMI signal will result in blank screens or dropouts, not a slightly worse picture.
Die area for a FIFO is scarce when your usb receiver must fit into a small smd package. But yes, cost is a big deal.
The unbuffered stream has another consequence: in isochronous USB audio, the output clock is derivated from the frequency at which the packets arrive (by a PLL). Some usb receivers are absolutly awul at that : see for example: http://www.diyhifi.org/forums/viewtopic.php?f=2&t=1360
Edit: the PCM2707 are isochronous receivers. However their jitter is low enough(measured at 2 or 3ns from memory) and TI spact system is good enough not to get interruptions. So I just used that followed by a SRC4192, which clears up things nicely (see : http://www.diyaudio.com/forums/digital-source/46413-any-feedback-new-cs8421-high-res-asrc.html#post528312 , according to the same Bruno Putzeys the SRC4192 will stay in "narrow mode" for such low amounts of jitter).
But we have to keep things in check here...on this forum, we're talking about DACs that are hundreds of dollars. Cost should not be an issue in those cases. This should be more of an issue for integrated DACs, such as those that are housed in active speakers (Corsair SP2000, or B&W PC speakers).