Yup, you will use the optical / coax out to bypass the DAC.
Budget DACs... a simple google will reveal names such as Audioquest Dragon Fly, DacMagic, Arcam rDac, Asus' dac for ~20k.
Check on Hfv, they have decent DACs going for 15k+.
However, i am not sure a DAC will add much value with the...