Correct..
USB-C to USB-C will make the ML function as an external DAC/AMP + Headphone
3.5mm to USB-C wil male the ML function as a passive headset (by using unused pins of the USB-C connector to transport the analog signal). Internal DAC/AMP are bypassed.
This was basically my question, if the 5909s with an external DAC and not using the internal one, could sound better or if the built in DAC is considered to be good enough for the headphones capabilities. I realize that that the answer to this might be subjective, as you could probably tweak the sound much more with a high end external DAC. Also, size constraints, weight etc. should probably mean some compromises have been made with the internal one.
Most high end headphones don't have a built in DAC AFAIK so this is somewhat of unknown territory. As I would be mainly using them with a PC when not wireless, not having to use an external DAC would make things simpler, especially when using a laptop.
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