How it performs with an external DAC is going to depend a lot on the DAC. I really like my Touch with the DAC I have, but I'm sure I wouldn't be as happy with it if I didn't like the DAC as much as I do. Versus the cd player it will give you some versatility though...you can change the sound up by changing the DAC.
Like I mentioned earlier, I really don't like the Touch too much as a stand-alone. If you're not planning on eventually using it as a network player, I would suggest looking elsewhere.