Benchmark DAC1 Pre

Option 1 should give you the best sound quality.

I'd go option 1. If you can adjust the gain on your monoblocks or sub such that you drive the benchmark harder (louder) then you can eek the most out of its high performance specs (channel sep, S/N). I believe it comes with attenuator straps in the -20 db position (so you can go higher if you amp will take it by changing these). The DAC1 has very high crystal clean output - so you should try to exploit it (provided you do not overdrive the input to the sub).

Here is an article explaining why you should use XLR (all my gear is connected this way). While I think you can do well with RCA and often differences will be inaudible there is no doubt that XLR is superior. Most audiophile problems with interconnects are due to ground loops and shield induced hum/noise on imbalanced RCA connections. Ground loop problems alone may explain most of the wondrous effects of changing interconnects, as reported. Bear in mind that not all XLR is the same - a key aspect to the design is having the same impedance with respect to ground - true balanced lines with balanced circuits.