Good cd player and a great DAC or great cd player?

The upgrade plan makes sense in principle: buy a player, then a DAC and a digital interconnect, then sell the player and get a good transport. Along the way you might try an aftermarket power cord.

But is this the best way? Reliable generalizations are impossible. It depends on the deal that comes up when you go shopping, it depends to some degree on component interactions; more than anything else it depends on the sound you discover you prefer. If you mentioned specific players, than asked about the quality of the transport in each, someone might be able to provide info... but I don't know how much farther ahead you would really be after that. Are you really ready to start considering the pros and cons of Sony vs. Philips, or TEAC VRDS vs. CEC? How easy will it be even to find out what transport a given player uses? Is that the important question?

My very humble personal opinion is that if I were in your shoes I probably would have stopped listening to my sound system except in the background. If I sat down to listen, my attention would wander. I'd pick up a book or think about exams. Emergency! Nine-one-one! Call the music medics!

Is that what's happening to you?

Most of us would agree with you: you need to change your source. I myself would have a burning desire to do it right now and not wait. As for what to, well, a NAD 541 or a Music Hall CD-25 would give you a better reason to listen right now. If you can look farther upscale, fine. If you can wait longer and save more, fine.

Once you get your next source, though, forget planning, stay open and listen, listen, listen. Listen to your system, to friends' systems, make friends with a dealer (hint: buy something) and listen to the best he's got. Go to a show. You'll come to know what you like within what's available and what you can afford. That will make your choice of a much better source and an upgrade path much easier when the time comes.

I think you are making absolutely the right decision in upgrading your source first. In fact, according to me you should sacrifice on other components to get the very best possible source. So many systems have a so-so front end, and at the finish line you can hear that oh-so clearly. My principle (given a finite budget) is that you should always have more resolution available at the source than downstream.

Upgrading from a $1k system to $20k system is a big step. Unless you inherit some money, you may not want to go from your former CD changer to a $2.5k CD player (or separates) simply because until you upgrade some of the other components, you will not hear all the differences in quality the extra money is paying for. And, until the rest of the upgrades are in place the player is depreciating in value and technology is progressing. I would buy a good used CD player which can be sold in a year or two at around the same price you paid for it.
That being said, I would recommend an all-in-one CD player. I had separates and went back to a one-box unit (resolution audio opus 21) and am very happy.

Agree with Bwyoung. I'm not also sure whether just a straight listening would help. In order to evaluate a real difference between two very good components one should know what details to pay attention on, and it's not obvious when go from $1K to $20K level. Criterias of what is a 'good sound' should be adopted to a new quality level. All this just requires a lot of time...

In regards to CDP or DAC+Transport, I was recently looking for the answer on a very same question, one very experinsed person gave me an idea, for which I still feel obliged to him. He explained that while I consider myself on a budget (whatever it means for me), it worth to get more upscale integrated component then two cheaper separate ones. After some listening I realized the wisdom of this rule (there are some exception, such as power requirement for amplifiers, if one need it). It saved me money and I'm happy with my sound. Just my humble opinion.