I am not an expert on this topic, but here's what I know.
There is a known (but unfixed) bug in Windows XP's "Kmixer" program. This is the code that translates the digital bitstream coming from your player app (iTunes in your case) to the format required for output to the sound device (internal card or USB device in this case). I theory it should pick the appropriate sample rate to avoid having to resample the signal - in practice it apparently is resampling, at least in some cases, resulting in a loss of information. It also may be doing other bad things like adding noise and/or changing the frequency response - not sure about that. Check avs-forum's HTPC section for lot's of heated debate over whether people think they can hear the problem. There definitely is a problem though.
Yes folks, Microsoft screwed up.
Enter ASIO (Audio Stream Input Output). This is an alternative output format that Apple uses, invented by Steinberg for pro use, that requires A) a player program that outputs ASIO (J River does, WinAmp has a plug-in, not sure about iTunes under Windows), and B) a sound device with an appropriate driver. I already use J River Media Center, and got an ASIO USB driver that supports the Powerwave from
www.usb-audio.com. It also allows you to upconvert to 24-bit audio and higher sampling rates, although the Powerwave doesn't support higher sampling rates (I tried).
The other approach to circumvent the problem is "kernal streaming". I don't know how to do that with a USB device - anyone else?
I thought the soundstage depth improved noticeably with the ASIO driver, but I hardly did a controlled experiment. Folks with a lot of experience with HTPC's recommend bypassing Kmixer for critical applications though and that's good enough for me.