Your assumptions are correct. It's bit perfect only if no changes are applied in any way. iTunes volume must be set to 100%. Also make sure the sound "enhancer" and crossfade settings are turned off.
Controlling the volume via the knob is preferred to using iTunes to do the same. In other words, analog attenuation is better than digital attenuation. At least for normal 16-bit CD quality music.
Try this for an experiment:
Set your iTunes volume level to maybe 1% or so. Then crank up the uDAC to a listenable volume. Sounds pretty bad right? That's because when you lower the volume digitally, you are "throwing bits away" from the digital signal. So at the low digital volume levels you are only left with a handful of bits to represent the dynamic range of the music that was originally encoded using 16 bits. There will be information loss in the signal.
However, it's not the end of the world if you tweak the volume just a little bit, or use EQ. Same with adjusting the L/R channel balance. It won't be bit perfect, and the sound signal will be changed. But don't let that stop you if the result is you enjoy your music more. Consider that many super high end audiophile products do exactly that. DACs can upsample the digital signal to remove jitter. Amps may add colorations to make it more "musical" sounding. Or they apply crossfeed for a more natural soundstage. Bit perfect is a a good standard to use as reference, but don't let it hold you back.
