I was expecting to find someone already commenting on this but nothing...I own a first generation DAC1 factory updated. No USB, no preamp functions. I have had major differences in sound depending on the transport...(I am using old Audio Alchemy powered digital interconects)
This is my experience...I bought the thing as an upgrade to my old ADCOM CD player, once very well reviewed and running aroung $1350 before being discontinued. I had been very happy with the player and used it for years. As digital state of the art had changed a lot since I bought the ADCOM, I wanted an upgrade that would not bankrut me. The DAC1 was the path.
As the ADCOM did not have a digital out (amazingly stupid) I first tried an inexpensive Phillips DVD player into the DAC...Awful...the sound was worse than the DVD player alone and far worse than the ADCOM. OK, I next fished out a portable CD player with a digital out and had far better results. This 15 year old player used as a transport through the DAC produced sound at least as good as the old ADCOM and had a far more revealing sound...things like fingers tapping guitars were clear and not simply unidentifed thumps...Getting better. I bought a used ROTEL 1070 to use as a transport and that made a vast difference, far better sound than anything I had used for years produced.
I know nothing about electronices, but the explanation given by the manufacturer mirrored my experience with the different sources, a DVD player, a cheap and old CD player and a far better, but used CD player used as a transport. I cannot say if this is the state of the art, but it is the best sound my modest system has ever produced. I would love to hear the DAC1 with the new PS Audio transport...