Yes, that's exactly what I'm saying. I've confirmed it myself with an SU-DH1 (hardly an audiophile DAC, but still a DAC with S/PDIF input nonetheless). RightMark 3DSound's positioning and EAX test doesn't lie to my ears.
You don't even really need one of the more expensive cards, since the main benefit of higher-end sound cards like the Titanium HD, anything Auzentech-built, and the Xonar Essence line is a higher-quality analog output stage, which is being completely bypassed by using a DAC. Lower-end X-Fi cards (XtremeAudio aside) also retain all the relevant DSP features like CMSS-3D Headphone and hardware EAX 5 (for older games that use it). In essence, you're using the sound card solely as a DSP to process the audio and letting a higher-end DAC convert it to analog more cleanly than the card itself can.
Sweet. Maybe I'll play around with the Titanium HD for a bit and then get an external DAC. Thanks for showing me the light.