That's not true. I have a USB Dac and it's silly good.
USB Dacs are some of the best available, but a good one would cost 3x as much as that Onkyo receiver.
It is likely that in the setup you describe the USB input on the receiver is poorly implemented. For the cost of the Onkyo, they are likely to be using a very cheap USB receiver chip.
A low-cost way to get around that (keeping in line with the budget of the system) is
a) get an M2Tech USB to SPDIF (coaxial digital) converter
http://www.m2tech.biz/hiface.html or
b) get a CEntrance DACPort LX
http://www.centrance.com/products/dacport/I've used both and for your needs I would get the CEntrance. I use one for my bedroom system and the sound is smooth, detailed, dynamic, and doesn't suffer from the digital harshness of a lower quality DAC. The reason I recommend the CEntrance is that it has a built-in DAC that is going to be better for good stereo music than the built-in DACs in the Onkyo. The reason is that by integrating the DACs into the device, CEntrance can optimize the power supply and jitter control (a simplified explanation). Also, CEntrance licenses their USB interface technology to expensive DAC manufacturers--it will be significantly better than the USB interface in the Onkyo. I use the CEntrance with a $800 amplifier, and the DAC is not a limitation on the quality of the sound.
The only other thing you would need if you went the CEntrance route is a 1/4" to RCA cord. Bluejeanscable.com make a very good one:
http://bluejeanscable.com/store/audio/MSA1.htmHere's the configuration (you can change the length to whatever you need, of course)

I hope that helps!