Computers make excellent sources. Or rather, computers make excellent transports. An external DAC is essential if you're serious about computer audio.
Right now, I'm running Audiophile 24/96 -> unmodded DI/O (testing out a MENSA DI/O soon, though) -> Gilmore V2 -> Etymotic ER-4S. Sounds absolutely amazing. A super-awesome bonus is that the Audiophile is great for recording, which means I can rip vinyl easily.
dsavitsk's comparison of a $3,000 CD player and a $3,000 computer is absurd. A $3,000 CD player and a $1,500 DAC + $500 DIP (+ $1k for a computer) is a much fairer comparison, and I'd be surprised if they weren't nearly equal.
The ease and convenience of a massive library of uncompressed audio at your fingertips outweighs the benefits of a CD player, IMO.
BTW, Guild: Can you hear differences between burned CDs and original CDs, too? Heh.
Also, Edwood: I do believe that HDCD encoding translates to lossless files. I sent a friend of mine an .ape file from one of my HDCD discs (I forget which one) - and the HDCD light on his DAC lit up when he played it. I would test it yourself to be sure, though.
- Chris