There is an option in the settings menu of XBMP that will allow you to output only stereo. From what I know, the XBOX outputs a digital signal that must be decoded by a dolby digital decoder. My receiver has a stereo mode that bypasses 5.1 decoding and forces the output to stereo if the received signal is a 5.1 bitstream. This is how I listen to music with XBMP. I really dont think a separate DAC is necessary though. Those things can be pretty expensive. I would just use the DAC of a mid to high end receiver. Remember that the sound quality is only as good as its source, and mp3s are lossy compressed files. On the other hand, if you're going to grab a DAC anyway for your CD player, then by all means give this a try and let us know your results.