Want to build SPDIF-to-line DAC for computer, where do I start?

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I recently built a USB DAC based on PCM2705 and it sounds just fantastic compared to the motherboard lineout.
Now I would be interested in building a DAC for the SPDIF output also, but the chips available seems a bit limited. I know Wolfson have a few.
Could I expect any improvement with an SPDIF DAC compared to the PCM2705? For example from the added headroom if I can run the output with higher supply voltage?
Would it be a better idea to build another USB DAC with the PCM2707 and an external I2S DAC?

Would I be able to get more than two channels out of the SPDIF of my motherboard (Intel HDA Audio)?
 
You could buy a cheap S/PDIF DAC on eBay and modify it. They're around $20 shipped. Possibly salvage the digital filter and DAC and analog portion of a CD player and add an S/PDIF receiver. Buy some obsolete interface like the Digidesign 442 and turn that into a DAC. Buy a bare board or kit from somewhere. Get a Behringer SRC2496 and upgrade it; that also gets you a decent ADC for recording.
 
Now I would be interested in building a DAC for the SPDIF output also, but the chips available seems a bit limited.
Yes and no; there's not all that many different ways of implementing a SPDIF receiver. See also the second post in this this thread.

Could I expect any improvement with an SPDIF DAC compared to the PCM2705? For example from the added headroom if I can run the output with higher supply voltage?
You won't find many DACs which take more than 5V. There is some performance improvement to be had from moving to a higher quality DAC than the PCM2705/2707 but the simplest first step is to ensure your gain structure's providing good bit depth utilization in the DAC first (lots of discussion; just do a search this forum). There is some SNR gain to be had from increasing the full level swing on the DAC/digital preamp to power amp interconnect but switch to balanced first if you're running unbalanced.

Would I be able to get more than two channels out of the SPDIF of my motherboard (Intel HDA Audio)?
SPDIF is two channel. You could bond multiple audio devices in ASIO or use an audio interface with multiple SPDIF channels (though you might as well use the interface's DACs and at that point). A more common implementation is to follow the SPDIF receive with DSP XO.

Would it be possible to decode SPDIF with an AVR microcontroller (does Atmega 1280 have enough power to do it?) and output I2S to a DAC?
For wired SPDIF you'll need something which converts the biphase encoding to LVTTL. You could DIY this or rely an optical SPDIF receiver for level translation. Either way you'll still have to implement the protocol logic and clock recovery. It's a lot of work to reinvent a three dollar chip. I would tend to bet the 1280 has insufficient oomph for bit banging as it would only give you 5.6 cycles per bit for redbook, though perhaps you could find the right peripheral to move bytes.
 
Nah, either build from chips or I could aswell buy a finished product.
Would it be possible to decode SPDIF with an AVR microcontroller (does Atmega 1280 have enough power to do it?) and output I2S to a DAC?

The straightline solution is to use a DIR9001 or other SPDIF receiver. There are others from Cirrus, Wolfson... C8416, just google SPDIF receiver.

There are many DAC kits on ebay, it's hardly worth the trouble to design one. A DAC is all about the implementation. Layout, choice of ancillary components. You can copy manufacturers evaluation modules, but unless you have very good testgear you will not know for sure the performance of what you have built (unless it sounds terrible).

If you want verified performance you can buy an expensive finished product with good specs.

Asus Xonar Essence ST(X), EMU 1212M or ESI Juli@ are very good and not even very expensive, plus you get ADC too, and you can use them to test other equipment.
 
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