storage options for MacBook Air

Without knowing the type of player you plan to use it's tricky to suggest anything. 

Seems to me that the portable benefits of the MB Air are lost when it gets connected to a wired up external drive and DAC. 

Having you considered a streamer w/ internal storage? One that you could control with your MB Air or a phone/tablet?

Haven't considered anything else since this setup mainly includes pieces that I already have which is the MB Air running iTunes connected to a Ultra Fi DAC-41 USB DAC. My files are all AIFF which is why I'm sticking with iTunes.
The question remains, do I keep my music on the external drive or copy music to the solid state drive of the MacBook? 

When I had my MAC Book Pro, I stored all my music on an external  LaCie hard drive (used Thunderbolt cable) and not on the MAC Book Pro computer.   I never tested this but my retailer said playing music from an external hard drive would sound better then if the music was stored on the MAC Book Pro computer.  My LaCie hard drive was backed up to a 2nd hard drive.

I have since replaced my MAC Book Pro Computer with the Aurender N10 Music Server.   My audio system sounds more open, more natural, clearer, better bass and I am very happy I purchased the Aurender.  The ability to switch back and forth between Tidal music streaming and my stored albums on the Aurender is now a very easy process (one mouse click).  The Aurender iPAD app is much easier to use than my MAC Book Pro computer.  Album selection is also excellent with several different album selection choices available.  The Aurender N10 Music Sever is highly recommended for its great sound quality and ease of use.