Get the best of both worlds - buy a decent transport and a DAC. You can swap the DAC between your iriver and the transport.
For transport, try looking for a NEC external SCSI cdrom on ebay. A low-fi CDP/DVDP with a digital out works too, ask around to find out which models have nice digital outs. There's plenty of options for DACs, a Benchmark DAC1 is in your budget ar $850 IIRC. I have not heard this myself, but it is reccomended. Some other DACs to look at are AOS Piccolo, again I am basing this off what I have read. There is also a nice $500 DAC whose name I don't remember, it has a cover with several holes in it and runs on batteries, which I have heard and liked.
What kind of digital out is your iriver? That might cut down on options, many portable-focused DACs have only optical, whereas the ones made by people and small companies only have coax. A pro-sound one designed for studio use should have both.