does USB DAC process MP3s too?

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It's not the DAC that processes the WAV, MP3, FLAC, APE, MPC, etc etc. It's the computer.

In really simple terms, the computer takes a music file (whatever it is), processes it, and sends the resulting digital data to a soundcard, where a chip converts that digital stream to analogue, so you can listen to it.
 
correct, the media player (iTunes, Media Player, Foobar, XMMS, whatever...) takes the file, decodes it and manages it (stop, play, pause, FF etc) in relation to a hardware output device (soundcard / USB DAC).
So if your media player can handle a WAV and send it to your DAC, the chances are it can take an MP3 and send it to your DAC.
 
That's heavily dependent on the sound card and USB DAC you are comparing. Think of a USB DAC like an external sound card, if you will--they both serve the same purpose.

That being said, the DIY implementation of a USB based chip is easier than building your own PCI card IMHO, thus the disproportionate representation of external USB based devices in the DIY crowd vs. internal solutions.
 
Usb dac will play mp files as stated above. I use the DDDAC to very good effect.

More pertinant question is... Why would you want to?

If you build something of any quality at all, you will hate MP3 forever.

The DDDAC I use really shows up the differences between MP3 and WMA lossless. The compression on MP3 sounds dreadfull in comparison. I went on a ripping binge through my CD collection. I have now converted most into the better format.

Mp3 is fine for playing on a portable device, though even my Nokia N73 Music edition sounds better on lossless. But 2gb of storage quickly gets eaten up using this format.
 
Does USB DAC process MP3: yes.

Edit : excuse me, I would say, yes, you can hear your MP3 files using an USB DAC !

The MP3 is a compression standard, and it's not as good, in term of quality, as zero compression or looseless compression formats.

APE or FLAC are looseless formats : you have the same quality as Wav files (16bits 44KHz).

On Windows XP because of the kernel and / or the player you use, the sound is only processed on 14bits. This fact is well documented on diyaudio forum, you can search about it.

For more informations I invite you to read these pages from Benchmark

http://www.benchmarkmedia.com/wiki/index.php/Main_Page

MP3 files are horrible (in term of quality) especially when played trough low cost cards / USB Dacs.
 
IMHO very few USB DACs can process MP3 files as they would have to implement MP3 decompression in their circuits.

In most cases it is the software player or perhaps in some few cases directly the device driver which does the conversion from MP3/FLAC/APE/OGG/etc. to WAV. The USB DAC is in most cases just a USB audio device, communicating using either standardized or proprietary USB protocols and cannot do any major format conversion.
 
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