Will a DAC drastically improve Apple TV?


I have been thinking of getting the apple tv so i can have my entire itunes collection available for play through my new audio system. Problem is, i have connected my ipod through an rca cable to my system and it sounds terrible. I have connected my laptop and certain tracks sound ok, others, terrible. very muddled, no detail, and no bass. Will a dac such as the bel canto dac 2 make a dramatic improvement with mp3 playback (192-256kps)? Also, the Tos link, is the optical link that would work with the apple tv right?

I am new to all this stuff. Just recently bought a mcintosh 6450 integrated, and a pair of gallo 3.1s. Was thinking of getting a hard disk player such as the mcintosh ms300 but probably not for a while. And if the apple tv with a dac will sound pretty good, that may be the easier route.
farjamed
I have the 160 GB Apple TV. 400 CD's is about 120GB in Apple Lossless. I have a Naim Supernait which has a built in DAC. I am very pleased with this combination. The Apple TV combination also compares favourably with the Naim CD5x which in case you don't know is a $3400 CD player. So in summary the Apple TV works well as a media player. I just hope they make a version that has a bigger hard drive.
Also check this thread on Audio Circle: http://www.audiocircle.com/circles/index.php?topic=64609
I have just inserted a Cambridge DACMagic DAC in between my 160G Apple TV and the analog inputs to my Pioneer Elite VSX-82 receiver. My cables are an older Monster high grade toslink cable and a pair of Harmonic Technology Truth Links and I am astonished at the results I am getting after three days of burn-in.

I play Apple ALAC files that have been synched to the Apple TV hard drive and I am very happy with what I am hearing. The sound quality exceeds what I was hearing from Redbook CD's played on my Sony ES 999 CD player