To get the most out of any external dac, you need a good transport and a good digital cable. A transport is basically anything capable of sending a signal to an external dac. There are many different kinds of transports: cd players, blu ray players, dvd players, pc, etc... A dedicated transport is a transport that is built specifically to send signals to an external dac. Most dedicated transports use cd's, but there are some that can use dvd's as well. It's basically a cd or dvd player without a built in dac.
The dac is only as good as the transport that's feeding it. I'm sure with a good quality transport, the DacMagic could sound better than some $500 cd players. But if that DacMagic is connected to a mass market cd player or blu ray player, I'll bet the $500 cd players would sound better. Nothing is wrong with using a blu ray player as a source if that's all you have. Just don't expect to get the most out of a dac if using a blu ray player.