That is correct, it has a digital out so you could connect it to the S/PDIF input of the FiiO E17 (this output is PCM only, not DSD). However, it feels that it would be overkill to use the iDSD purely as a USB to S/PDIF converter. I have owned FiiO DACs and amplifiers in the past (not the E17 though), and the iDSD itself has superior sound quality on its own right, and supports PCM on its USB input up to 24/192 and it's also a native DSD DAC, with many other features that the FiiO does not have.
If you really like the FiiO sound, there are cheaper USB to S/PDIF converters out there than the iDSD. The iDSD is also more expensive than the FiiO E17 unit. But if you want to go ahead and buy the iDSD unit anyway, you might find that you'll probably end up selling the FiiO and just use the iDSD as your DAC/amp.
My two cents after owning the iDSD for a bit more than two weeks, it has become one of my trusted daily companions...