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he Gungnir DAC is very good, if you have decided to go with a new source. BUT, if you are going source, I'd recommend a DSPeaker Dual Core 2.0
I owned a Panny XR55 AVR maybe 6-7 yrs. ago that I powered some Paradigm speakers in an HT system. Not too shabby sounding (esp. for the money), but definitely on the dry, analytical side.
You can pick up a cheap DAC & still get really good sound (Audioquest Dragonfly you mentioned as an example. I've got a $350 Grant Fidelity TubeDAC-11 that also acts as a preamp). So I think it is less critical than a better amp for your system.
i'm familiar with that DAC and it's preamp etc. but like yulong and eastern electric, it's tube flavored which is too ripe for my tastes and an absolute last resort. i just don't go for that kind of sound ...
You can pick up a cheap DAC & still get really good sound (Audioquest Dragonfly you mentioned as an example.
Did you check out the nuforce DDA-100 PowerDac. 50WPC integrated with digital input only
I use that Panny for HT, it sounds much better with the coaxial digital in from the source rather than rca cables. Then of course, there is no need for an external DAC since it's direct digital. Which makes me think you are using the RCA cables from the source. If so, try using the coaxial instead and see if it helps you.
the new nuforce is just 10wpc, a little more clinical than i'm after, MG3 has a little warmth, but it is a good deal if you're willing to settle on a closed system that you have to upgrade twice as DAC or amp. it looks like it's especially good for PC systems though. i already have clinical sound with ruthlessly revealing flat speakers. i'm hoping to inject just a little bit of warmth with both the MG3 & gungnir which don't stray far from detail and neutrality. tubes aren't much of an option for me, especially without an air conditioner.maybe i'll re-case the MG3 with a high quality step attenuator the same value as whatever bargain pot is used. turning it into a dual monoblock with the same power rating is a bit much. i'd DIY a battery powered ncore integrated before that.