Squeezebox help and ideas wanted

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I purchased a second hand Squeezebox SB3 from a pawn shop today, it was pretty cheap, I don't think the staff knew what it was.
My question(s) can the unit be improved with modifications, and how would I get the best sound out of it?
I am in the process of looking for a DAC, as the Squeezebox has a optical and digital output, which of these is best? Or is there any other way to get the signal out?
Any assistance appreciated.
 
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