Where does the DAC go?

I am under the impression that a DAC would essentially result in better sound.

But then I saw in the ROKU specs that there is an internal DAC...so that validates Kr4s response, i.e., I don't need/can't use an external DAC...correct?

If there is a digital output, the chances are that you might be able to improve upon the ROKU's internal DAC (not a far stretch to do as much, but just an educated guess on my part - I have no direct experience with ROKU to back up my assumption, but I think it's a fairly obvious conclusion). To use an external DAC you would run a wire from the ROKU's digital output, which would be one of several different types of interface (Most likely TOSLINK, RCA, or BNC - all of which are S/PDIF connections, the former is optical and the later two are coaxial). Yes, you would probably get better sound assuming you get a decent DAC.

Not that it really matters (OK, well it does), what would a "decent" DAC run me?

<$800.00 Check current threads on DACs.

The internal DAC in a ROKU is like the one in an iPod in that it's cheap. If you're using any streaming media player for music into a hi-fi, then you will improve the sound by plugging the player into a half-decent external DAC.

The player requires a digital output to do this.

Then the DACs analog outputs connect to an input in your hi-fi.

I use a Cambridge DACMagic for my Apple TV and I'm quite happy with it. It goes for about $400.