You're correct about the Airport Extreme --> PS Audio --> Onkyo Receiver setup, using a Toslink to mini-Toslink optical cable between the Airport Extreme and the DAC. You can buy optical cables that are Toslink on one end and mini-Toslink on the other or just use a mini adapter on one end of a standard Toslink cable.
I don't have any experience with the PS Audio DAC or with your Onkyo receiver but have used three different DAC's between an Airport Express and my amp and it's quite easy to hear the differences among them.
The only way to know if the PS Audio, or any other DAC, would sound better than the internal DAC of the Onkyo is to listen to them but given the relative costs of the two pieces it's a good bet it would be.
I don't have any experience with the PS Audio DAC or with your Onkyo receiver but have used three different DAC's between an Airport Express and my amp and it's quite easy to hear the differences among them.
The only way to know if the PS Audio, or any other DAC, would sound better than the internal DAC of the Onkyo is to listen to them but given the relative costs of the two pieces it's a good bet it would be.