usb, spdif, or usb to spdif converter

It depends. One way to look at it is:  If your DAC is better than your source then USB. Otherwise SP/DIF. The USB is retimed by the DAC, the SP/DIF, AES is not. But basically you have to try both. 
 

Never convert anything.

The USB interface is a data packet interface. Granted, you can improve music quality if you put in a better usb transmitter/source device. However, the receiving dac is going to have to un-wrap that usb data packet to get the actualy music file data (such as 16/44.1 or 24/96, etc.). Then it has to generate the individual channel pulses at the exact clock timing (such as 44.1khz). It outputs this on two i2s data lines that feed directly into the DAC chip. That is why I talk about the quality of the USB-to-I2S module in the DAC. If you have a really good one, then the USB input can be used.

When you use S/PDIF, the DAC has to unwrap this into two separate i2s data streams (for the dac chip). However, the pulses are pretty much already there and are being sent with the actual clock timing required (i.e. 44.1kz or 96khz, etc.), so no re-clocking /re-generating has to be done by the DAC when compared to USB input.

These high end usb-to-spdif converters are a very high end version of the "USB-to-I2S" module in the dac. This can be a significant improvement over using the DAC USB input.

Never convert anything.

Converting USB to i2s works for me.

Many thanks and hope you all had a wonderful Thanksgiving.  I am running a windows 7 desktop computer (a 12 year old gateway) usb output to an idsd micro dac for both music and blu ray movies.  I would rather use a stand alone player.  However, when I compared the computer sound (usb to the usb input of the dac) to the player's sound (coax to the same dac - using a newer sony blu ray player) the computer's sound was MUCH better in every way.  Any thoughts on getting equivalent sound via coax from a player would be appreciated.   

I've got a music fidelity sitting here doing nothing if you want a fabulous deal on a USB SPDIF converter.  This is the 24/96 version.