Apple TV is the way to go: $225 (too bad the price just went up it was $199) for the 40GB model. It has an optical out, is extremely easy to use and sounds excellent. I avoided the Wadia becuase it clearly was "ergonomically inept" -- the AppleTV is the opposite. And you can stream internet radio at reasonably high sound quality.
Plus there's a lot of video options if that is of any interest.
Plus there's a lot of video options if that is of any interest.