The Cowon D3 has coax digital output, and I am currently using it with the Leckerton UHA-6S mkII.
The D3 is/was a relatively overlooked player because, for an Android device, it's pretty slow and buggy. However, on paper, the D3 has everything I am looking for in a DAP:
-10+ hours battery
-digital and/or line-level output
-physical pause/play/next buttons (this is the big one, because there are many players that meet my criteria except for this)
-on-the-go playlists (because of Android -> poweramp)
-gapless (because of Android -> poweramp)
-expandable memory slot
-plug & play sync (no iTunes or Zune software needed!)
I really wonder why there are not more players on the market like this. I suspect the OP and many others are looking for the same thing. I guess we just have to wait for the Fiio X3!
One big caveat if you go this route - other than the D3 is slow and PowerAmp crashes often - there is a slight hiss problem with the Leckerton and coaxial input. What happens is, if a signal is sent via coax to the Leckerton, then is stopped, the Leckerton's DAC loses lock and emits a slight hiss. This will happen even when you simply pause music on the D3. I heard from Nick Leckerton and there is nothing that can fix the issue for now. For me it's not a deal-breaker, but I thought I'd point it out.