Steve, I don't question your expertise but perhaps something else was wrong. According to test conducted by Stereophile AE is bit perfect.
"Some audiophiles have dissed the AirPort Express on the grounds that its digital output is not bit-accurate. However, I found that this was not the case, that the data appearing on the AE's digital output were identical in the original file. To check this, I compared a WAV file with a duplicate that I had captured on my PC from the AirPort Express's S/PDIF output. I used iTunes on my PowerBook playing a version of the file encoded with Apple Lossless Compression to feed data to the AE. The files were bit-for-bit identical, proving that the AirPort Express is transparent to the music data (as is ALC, for that matter). "Perhaps firmware had problems previously.