I asked for comparison with other USB DACs, so I meant X3 in USB DAC mode too.
I don't think either makes much difference in sound quality, with the possible exception of problems in your PC.
It can make difference in sound quality.
I don't understand what "problems in your PC" do you mean. :o) Playing music from PC through USB DAC is quite ordinary thing today. You can for example use X3 as USB DAC while playing music stored on your NAS server, including HiRes music formats. I am wondering that X3 users are not interested more into this feature.
>If I just want to listen to flac files on my X3 through headphones in the best possible SQ do I change to DAC mode in settings, or does it matter what mode I am in for best SQ using X3 with headphones?
How would it make a difference in sound quality ?
The digital data going into the DAC via USB should pretty much match a digital copy stored on board in the X3 memory (or SD card). Both are fed to the same DAC chip, and should sound the same.
"Problems on your PC", referred to the possible (but admittedly unlikely) exception to the above statement that both (X3 in storage or DAC modes) should sound the same. A PC having problems streaming digital music data out of the USB port without interruptions, or supplying noise on the DC power coming from the same USB port would make a difference.