Except the XDS1 is a DSD DAC and there is no proper way to do digital volume control in DSD space
True, however, you can use a number of passive attenuators that the XDS1 can drive with ease. But you'd really like that added coloration/lushness from the ARC. There is no way out. :-)
I think I've invariably found that adding a preamp to the system can provide improvements - it doesn't have to be solid state. I've heard the Ayre KX-R before on a similar system to mine and the improvements in soundstage are also apparent.
Of course it does not have to be solid state, simply because it cannot compensate for your source. :-)
Whether you go the ARC route or the Ayre route really depends on what you want to sacrifice. The Ayre provides that last smidgen of detail and dynamics but loses out in terms of sound stage depth and height plus that bit of midrange lushness
Without any doubt, and being well aware with how both your source and preamp are built, I totally agree that the ARC will give you this "extra" you need with the XDS1.
As I stated in the beginning, it is all about synergy. :-)
Best wishes,
Alex Peychev