New CDP or new DAC?

I'd recommend a new CDP. My experience has been that the performance of a decent DAC can be very transport-dependent. An average/budget CDP does not have a transport that will get the most out of a high quality DAC.

I would also say DAC through coax for the reasons cited above (flexibility to use both transport and computer-based or music server down the road). The one caveat is that you should seek out DACs that have very strong jitter reduction. I don't believe Sam Tellig commented about the jitter reduction technology in the M1DAC nor did he use with a bunch of different transports to make sure that it mates well with a wide variety of transports. So I would definitely try it out first in your system with your NAD CDP as transport before pulling the trigger.

Hello,
I once owned a c542. Found the redbook playback to be only slightly better than my 19 year old NAD 5000. The HDCD playback was impressive however. I recently purchased a AUNE dac/headphone amp new from flea bay and using it behind the archiac NAD 5000 cd player. Very happy with the DAC and noted a considerable improvement over the internal DAC. The DAC has USB port too which is nice. A great value for $165, shipped.

I say it depends on if you would be planning to use the DAC with a computer server at some point. If you only ever plan to play CDs one at a time then I'd say get a new CD player. There are some incredible deals on used CD players these days since the trend is to go towards a computer based server and DAC. I personally have no use for a CD player ever again but some guys are old fashioned and just want to play their discs and are happy doing it that way. Good for them I say and good for the guys who still like to play vinyl too.

DACs give you more flexability in that you can connect several sources. If you only see yourself using one digital source, that's not an advantage.

Dollar for dollar, I've found DACs sound better than CDPs. Less stuff in the box means more sound quality per dollar; at least in theory anyway.

I've had the Rega DAC in my system for a little evr a months now. It easily beat out my Rega Apollo, which cost the same amount. The DAC does everything the Apollo does (except make me get up to change CDs) a good bit better.

As far as coax vs toslink, it depends on the transport. Some stuff is noisy electrically, and toslink works better due to no electrical connection to pollute. Toslink can introduce more jitter to the system if not done right/the right cable. Trade offs, just like everything else. Anyone who says coax is always better than toslink hasn't heard enough of a variety of transports and good toslink cables IMO. There's no one right way to do anything, and every rule has exceptions. Your ears should be the judge, not Sam Tellig's or anyone else's.

Not a fan of Musical Fidelity at all, personally. Take anyone's opinion with a grain of salt. I'm sure you've heard gear that wowed a ton of people, yet fell on its face to your ears. I know I have.

The 542 is a very good CDP, or at least it was in its day. Make sure what you get is a good step forward and/or a step forward in every way, not just one or two things are better. That can be said for any new piece IMO.

Also, if you're looking to improve things and are prepared to throw money at it, make sure everything's set up right - placement, acoustics, etc. before doing so. No point in buying something new and not getting your money's worth because the room sounds like crap.

Just some food for thought.