I would be safe to assume that if flexium's looking at the uDAC that his source is a computer. I've found that even a PCM2702E equipped DAC improves the sound over the headphone out of my Macbook Pro or iMac, even with 320K MP3 and 256K AAC files. The uDAC he asked about is more detailed and spacious, with better micro-detail and soundstage with my UM3X than any of my three PCM2702E equipped pieces of gear that I still like and kept (EF2, 3MOVE, XM5). It's a great bang for the buck.
The uDAC to my ears beats many iPods in sound as well. I found the iPod Touch 2G to sound a little grainy and harsh, and the 4G Nano to sound slightly bright or make sibilance worse in some earphones; although I do like the headphone out jack of the iPhone 3G, 3GS, and 4, and the 3G Nano. Your suggestion to get an iPod instead of listening through the computer with a nicer DAC may not be the right move for him, if what he really wants is better sounding computer audio.
Now, he did ask, "Would a higher end Dac improve the sound much?" In response I'd have to say that jumping to a $200, $300, or even $400 DAC/amp will only result in minute/small improvements over the gains obtained from the cheaper uDAC (or uDAC-2 which is even better). In that case, doubling the cost only results in a few percentage points improvement in sound. That may be worth it to some people, and not to others. So I understand your reluctance to urge him on to spend more. I just wouldn't encourage him to live with the stock audio card that the computer came with if there is decent priced gear that will improve his enjoyment.
Today I was listening to several Westone IEM with some friends on their Emotiva CD/Apache amp desktop rig, plus my iPad and iPhone 4 with TWag LOD and Pico Slim, and the iPhone 4 headphone out. It was surprising that the iOS device with Pico Slim was warmer and punchier sounding than the very costly desktop rig, yet keeping up in areas of ambience and detail. Proof that you don't have to spend a lot of money to get good synergy with certain IEM. On the other hand, that same Pico Slim isn't going to drive a pair of HD600 or HD800 as well as the Apache.
The iPhone 4 headphone out also had slightly less bass extension, presence, wamth, detail and soundstage vs the iPhone 4 or iPad with the Pico Slim. But the headphone out was not bad at all, and I could see where someone would say an amp is not worth it. But in the end the amped iPhone/iPad was more immersive, transparent and realistic sounding than right out of their headphone jack. All three of us were convinced that the differences were not huge, but they were still unmistakable and rewarding.