CDP breaks and I move to computer-based...

Toslink does not suck. Here is how to fix your problem, purchase a glass toslink cable and you will be shocked at the sound. Plastic toslink cables are HORRID but a good glass cable like I use is every bit as good as my $1500.00 FIM Gold digitla coax. USB has in my experience not been able to match my glass toslink. I have a mac mini with 4 gig ram and a 1TB NAS drive all connected wirelessly a d it is as good and most time better than anything knave owned in the past in including my former Wadia 7...etc

Have to agree with Audiofun here, try the Wireworld Supernova 6 glass toslink, from the CableCo or GCAudio.com. Toslink to mini-toslink connectors I think is what you would need.

I have also read that the Van Den Hul Opticoupler is very good:
http://eugenehifi.com/VanDenHul/htm/van_den_Hul_Digital_and_AV_Cables.htm

The other thing you want to be sure of is that you have coreaudio set to output 24 bit. Then let iTunes worry about getting the files to core audio in the right format. TRy a 24bit download while you are at it and prepared to be blown away.

what is core audio? If it is set to 16 bit, will it still play 24 bit files? Are 24 bit files available on iTunes, and how are these produced? I think CDs have 16 bit resolution, so any 24 bit coming off of them is upsampled. What software do you use to do this and is the sound quality better than a downloaded 24 bit file?
I run a PC, just FYI. I also read something somewhere about turning off "kmixer," whatever that is. Do you know anything about that?