Modify my scd ce775 or buy external DAC?

I can't say what the specific benefits of modding the unit would be. If it elevates its performance up to a SCD-555es level, might be worth it. However, before you do anything, suggest you try a "forgiving" interconnect such as MIT if you have not done so already. I have tried an MSB link dac and it is not where I would go if I wanted relief from digital fatigue. The smoothest dac at a cheap price that I have heard is the Micromega. Needs a good transport and cables to sound its best. The Sony you have only has toslink out, so you would need a jitter reduction device to connect by coaxial cable to Micromega.

I have a MIT T-2 interconnect for my Sony SCD-670 and its as smooth as can be.

SACDmods.com claim that the level of their modded 775 is above the 555, which many of their customers have backed up-thanks for your responses, i'd never heard of the Micromega-by the way, i have some old monster cable interconnects, do you think that even the stock player would benefit right away from the MIT cables?