My experience with cheap DAC: I have a V-DAC, paid £129 one month ago. Initially I was surprised by the sound: my laptop connected through the airport express really sounds good...well, if you compare it to the analog output! But this week I've used my headphones for some nightly listenig and I compared the laptop streaming through iTunes connected to the V-DAC and the same music played through my Roksan CD player: the difference is clear, much clear using the headphones. The sounds from the laptop (or better, from the DAC) is flat, harmless while the CD is exciting, dynamic, vibrant. Then I made the same test using an old Alchemist CD player (15 years old, but pretty good at time), and again the sound coming from the laptop is lifeless. So my idea is: there's no giant killer, a £100 dac will sound as £200 cd player, I doubt that a V-DAC (I havent heard the DACMagic) will sound better then the squeezebox DAC. If you want a quality DAC have a look at BelCanto or Benchmark.
Massimiliano