I have picked up on this thread this morning, as I often read through the What-Hi-Fi Forums with a lot of interest, however I thought I'd sign up for an account this morning to comment on this post.
I'd have to admit that I agree with Tony_R's opinions / observations he has stated in his post.
I myself, have conducted a lot of different experiements / tests, be it with varying different devices, different sound cards in my PC, professional audio interfaces (for music recording) - and external USB sound cards. I've also tried various different CD players with different DAC's.
One of the tests I did do, was rip an audio CD to 'lossless FLAC' - I then used a Creative Sound Blaster Audigy External Sound Card to output both an Optical Digital connection, and a Coaxial Digital connection to my hi-fi from my computer. I also installed an ASIO driver to eliminate any changes Windows might make to the sound on it's output or at an equalisation level, as I didn't want anything to get in the way of the sound so to speak.
My results were interesting, I found that even though I played music through both the optical and the coaxial outputs into a DAC plugged into my hi-fi, a CD player plugged into the same DAC playing the same CD I had ripped losslessly, still sounded better directly from a CD Transport.
I have in the past observed audible noise at high volumes from a computer sound card over Co-Ax into an external DAC. I've also observed audible differences between different sound card's Digital outputs. Excluding the cable, I personally put this down to the differences in circuitry, and the way in which the signal is sent out from the computer through the Coax output.
I'd also like to put forward an example of something still working despite missing information. Take a corrupt JPEG file for example on a hard drive. You'll often find that the JPEG file will indeed load, and display a large proportion of the picture, but there will indeed be parts missing due to corruption either on the hard disk itself, or the file itself. Whilst a simple example, the same can be said for music, obviously on a less detrimental scale, as you'd be missing out entire chunks of music. However, my point is, that as a hard disk may fail to fully render a JPEG file due to corruption, there can indeed be some information loss, in the stream through the coax output that a DAC will fill in for so to speak, with oversampling, and what not.
That's simply just my opinion, I could have made the post longer, as I have quite a few different views / experiments I'd like to talk about, but I feel it's unnecessary, as we all have our own opinions, and it's purely subjective anyway!
Yes digital is 1's and 0's so to speak, but I believe there can be loss, I also believe that there are audible differences between transports with the same DAC, as I've heard them myself, and I also know how DAC's make up for any lost information as a result of the transport failing to accurately pass through the data. (A simple explanation, but the idea is there nevertheless).
Sorry for the long post, but thank you for reading!