What the benifit of using a separate dac?

Obviously it depends on the quality of the DAC built into your player. There is no logical reason why a DAC housed in a separate chassis should be better.

Take care before you spend money. D/A converters have been greatly improved in the last few years, and lowered in cost. Today's moderately priced component probably outperforms the best of a few years ago.

As suggested already, that would depend entirely upon the quality of the respective DAC's (and with the separate DAC, marginally upon the cord between transport and DAC). Also the separate DAC may take advantage of its own isolated power supply, FWIW. One other advantage of a separate DAC is the ability to take advantage of PC Audio which arguably can sound superior to redbook. Certainly the Modwright Transporter I use sounds better than any redbook player I've ever owned, and that is essentially a separate DAC combined with a music server. Unless your player has a digital input (not that many do), you will not be able to use the internal DAC for PC audio purposes. There are a few companies that offer a 30-day trial period. The highly acclaimed Benchmark DAC1 might be a place to start, but my experience is, well, I returned mine. YMMV as plenty of folks seem to like them. Only disadvantage there is that there is only 30-days for burn-in (enough time if you are vigilant about it).

1. To be independant of the transport (things break)
2. To play other formats
3. Connect computer (server)
4. Connect DVD and DTV (use cheap DVD player with jitter rejecting DAC)

DACs with jitter rejection (upsampling) are nice - they allow to use cheap transport and cable but some people prefare non-oversampling sound.

I have Benchmark connected directly to power amp (it has volume control) with one input connected to DVD player (coax) and the other to DTV (toslink). I plan to connect third input to my computer.

Benchmark is on neutral/revealing side (not warm) while more expensive Bel Canto DAC3 is a little more "organic" - check reviews of both on the web (stereophile.com)
Benchmark has 30 day free try-out program and Bel Canto might have as well. If you decide to get Benchmark buy new and the latest - possibly DAC1 USB ($300 more) since it has better XLR output drivers.

having just one purpose, without spinning motors and the associated power supplies for it, I'd have to go with a stand alone DAC as being able to provide improved performance levels.

But like one box CDPs, they too have their own flavors, options, and uses. The USB option for example may or may not be the best path for improved PC integration into a stereo system for example. Albeit, it’s a quicker remedy. Plug and play. I’ve since found that a very good sound card outputting a PCM digital signal via Coax rivals that path pretty easily too.

It can sure benefit or even fill out one’s rig as adding one to my system did. Especially if the DAC does an exemplary job in the de-jittering area. Lavry and Apogee are on the warm side of neutral IMO if that is the need. The Benchmark statements are already posted here. The Bel Canto DAC3 offers a lot of options and very good performance too. I chose the DAC3 as it fit my needs best.

Good points, Blindjim. There are a handful of DAC's that also convert USB directly to I2S (native language to the DAC) which circumvents the SPDIF interface (an additional conversion) in between. I think Empirical does a conversion to the Benchmark to accomplish this, as does the new Redwine Isabella in stock form, as well as others. Just instinctively keeping the signal down to as few conversions as possible would seem like a good thing. I'm not sure if this is similar to "asynchronous" USB conversion that is utilized by Wavelength in their recent versions of DACs, but I think these technologies are doing alot to address the de-jittering, as Jim put it, and computer>DAC connection and the clocking issues therein. Each manufacturer seems to be pursuing their own approach, and ultimately they all present a slightly different flavor. I was astounded in comparing DAC's recently, just how differently they can present music. The fact that so many love the Benchmark and I found it un-listenable (the highs were just too strident for me) just supports what I've always said - it is just as subjective as anything else in this hobby and you really just have to use your own ears and your own system/room/music to really make a judgment for yourself.