AppleTV to external DAC?

I just ordered an Apple TV which should arrive next week and I share your confusion. My reading here on Audiogon leads me to believe that the optimum arrangement is USB out of Apple and USB in to your DAC. I don't yet have a USB DAC so I'm going to try coming straight out of the analog audio outs on the Apple TV to see if that will do.
A problem I find in reading these comments is the density of acronyms. I realize I just used some of them above so I'm not trying to be critical of anyone else's use. It's just that I don't have a dictionary for all of it.

Got my AppleTV last week. Finally hooked up now (all kinds of issues up to now). I can put in a toslink cable to the DAC, but would prefer a higher quality linkage. Wondering if something like a Monarchy DIP would do it...

Macrojack, my understanding is that the AppleTV's USB jack is only there for servicing, and is not configured for audio USB. HDMI (High Definition Multimedia Interface) is the jack to get the multimedia signal from your AppleTV to your HD TV - and by the way you'll likely need to get an HDMI cable because your AppleTV does not come with one. SPDIF stands for Sony/Philips Digital Interface, and it is one of the standard formats for transmitting digital information. Strictly speaking, toslink is one version of S/PDIF, the other being "coaxial digital". HDMI is effectively an electronically re-formatted version of component cables (the 3-color video cables and standard L+R cables for audio), and can be separated into video+audio (thus the DVI (Digital Video interface) and SPDIF).

T Bone - I already have component video cables snaked through the wall to my DVD player. I was planning to just switch them into the Apple TV and use a computer as a transport either wirelessly or via some digital connection like USB. What now?

I'm hoping this move creates a slicker, more compact and maybe better performing setup. I'm not really unhappy with what I have but I want to add internet radio to my system and I would like to be able to access all of the hard drives in the house wirelessly if possible. Am I on the right track?

Toslink to S/PDIF coax (or AES) and I2S, and memory-based reclocking:
http://www.empiricalaudio.com/frPace-Car.html

Steve N.
Empirical Audio