help with DAC w/current system

The Rega is a good product, but the Classe D/A will improve its overall sound in every sonic parameter. That said, the differences will not be dramatic. The upgrade will be readily apparent, but don't expect, at least in the long-term, a night in day difference. Relatively speaking the Classe D/A is an older design. I would recommend you not pay more than $1,250. Also, the digital cable is critical. It pays big-time to experiment and there is little correlation between price and performance with this type of product.

What about a newer DAC, such as the MSB link III w/upsampling and all the goodies? Would the upsampling, HDCD, and future upgradeability be a better value in the long run?

I guess Audioguy that would be a decision you would have to make. With the format wars on going one should tread lightly until something is finalized. My dac has hdcd but I don't see that many discs with hdcd on the label. With the msb at least there is the upgradeability you mentioned.

With all respects for Audioguy3107 and his suggestion of the MSB Link Dac 111. The Link Dac 111 will not hold a candle to the sound quality of the (20 Bit non upgradable) Classe Dac 1. If you can get a good deal on the Classe Dac 1 by all means go for it. The Classe is a very musical sounding Dac and will integrate well with your system. As stated by Onhwy the digital cable you choose will play a big part for the sound quality with the Classe Dac 1.