well, the datasheet is clear about it...and many ppl have confirmed that the SQ was much better when it's in the USB path, we call it a real world experiment..you should try it sometime
my own field experience has been that:
-the best coax cable is the shortest, I currently use a 15cm 75Ω tinned copper RCA/RCA cable. Dan Lavry confirmed that the shorter the better:
http://www.lavryengineering.com/lavry_forum/viewtopic.php?f=1&t=144
SPDIF is fine, as long as the cable length are not very long (the shorter the better).
and many designers think that the impedance mismatch at the connectors is "academical":
http://recforums.prosoundweb.com/index.php/m/381397/0/#msg_381397
At frequencies encountered in word clock and SDIF2/3 connections, the impedance mismatch problem at the connector is academical.
-the Firestone Bravo sounds much better on a proper linear regulated PSU:
http://www.firestone-audio.eu/shop/products/allproductslisted/supplier220vac.php
You can see that the m2tech Evo also has a plug for an external PSU, and the Teralink X2 also sells w/ a DPS now:
http://cgi.ebay.com/TeraLink-X2-Power-Supply-Unit-X2PSU-USB-SPDIF-/330455177982
It features EMI filter, CLC low ripple filtering and high accuracy reference voltage output.
Some even plug batteries on their m2tech hiface to bypass the high ripple USB power:
http://images.blu-ray.com/htgallery/46945_full.jpg
A better PSU pays in cash SQ-wise, I used some JMLab reference records when comparing the wallwart adapter against the DPS on my Bravo, and the SQ was so much better on the DPS
-the Bravo has a galvanically isolated coax output, and -still- the SQ is so much clearer when the ADuM4160 is in the USB path...just like Oleg prophesied:
http://www.circuitsathome.com/mcu/usb/usb-cable-of-my-dreams
USB isolation is good for you. Isolated DAC makes better sound, isolated oscilloscope produces cleaner trace
-I've also rolled quite a bit of USB cables, and each time the best ones have been the 28/24AWG w/ a ferrite and gold plated plugs..it's using a thicker wire for power and thinner for data, and I also prefer the SQ when the USB2ISO is at the back of my S/PDIF transport instead of the back of the computer...I like to believe that it cleans the cable interferences(my neighbors play the wifi-warfare game) and jitter(you prolly don't believe in cable jitter, though)
A link about cable jitter, that was different depending on the direction it was used:
http://www.stereophile.com/features/368/index3.html
Keep in mind that my S/PDIF transport runs in adaptive mode, but some other ppl claimed to also hear differences between USB cables on async transports anyway.
Some ppl use the optional linear DPS on the Teralink-X2 together w/ your USB2ISO, you call it placebo and waste of money if you like...what matters is that ADuM4160 is fantastic for USB audio and your product is great:
http://www.head-fi.org/forum/thread/468872/teradak-teralink-x2-released-19-1-10/300#post_6791263
USB2ISO Usb Isolator + Teralink X2 + Teradak Linear PSU = Out of this world USB sound from Your PC with great price.
I'd suggest running some real world experiments, you might be surprised
and my question still stands:
would ADuM4160 provide a higher SQ on a less noisy PSU? but you don't seem to be much of a PSU believer, and you're currently the only company selling self-powered affordable ADuM4160 dongles in a hard plastic case anyway