Ok, firstly... what is DAC? What does it actually do?
Next, would I be best served with the O2 amp as suggested. Or, should I consider something like Asus` Xonad DAC+Amp. Just want to be 100% sure before I pull the trigger in a month's time.
Depends, are you going to be using the desktop to listen to music most of the time?
If so, (and if you have an open PCI-E slot open on your motherboard) then i recommend the Xonar Essence STX.
If you plan on going for the O2, i advise re-evaluating things a litte more. The Schiit Modi DAC and Magni AMP is a better combination vs ODAC/O2 Amp.
DAC = Digital to Analog Converter
It processes bits of code needed for music.
The computer sends them as wave form 1's and 0's through a usb or optical cable to the DAC, the dac does the processing. Thee better it is at processing, the better it will sound. The amp gives the power to the headphones or speakers you run. Certain headphones has more impedance, while the lower ones are usually easier to feed power to. You do not need to send power to your speakers if they're powered speakers (connected to a wall outlet for power). The amplifier is usually the thing that "makes the sound happen", giving it certain qualities that pertain to certain people. Thus people constantly change their music components because not all amplifiers sound the same.
You probably should of googled this.
Also, if you buy expensive dac/amp but only listen to mp3's, then it's pretty much pointless unless that dac has some kind of DSP Upsampling which would make some audio files sound less crappy.
Tim