Yes, digital cable from transport to DAC, then RCA or XLR's out to the preamp (analog).
There isn't an absolute answer on which is better or why some prefer separates. Wadia, for example, will give it to you either way. The idea might be that the transport is largely mechanical and the DAC is mostly electrical device, so perhaps they should be given their own homes. At the same time, connecting two boxes requires the interface between them to be universal so that one can swap them out for others. This requires a conversion in the transport to ensure it meets either SPDIF (via rca/coax or fiber/toslink) or AES (via xlr) specs, then the DAC box has to convert it back to the form its internal chips need. That whole conversion there and back can create some problems in return for being more flexible. For example, people like Steve Nugent at Empirical Audio do away with that to connect them using their more native internal bus (I2S), and clocking the signals in such a way that significantly reduces jitter (but that's a whole 'nother story).