Theres a 3rd option. Its a little more expensive than a squeezebox but it can do so much more. The Asus eee pc. Heres a pic I grabbed from google:
http://farm2.static.flickr.com/1338/1484629462_c49b385305.jpg
Anyway, it runs a modified (and simplified) version of linux. Its made to be a very small laptop (it has a 7 inch screen and 8gb of flash, no hard drive). It includes the wonderful amarok music player, which is superior to itunes in every respect.
Anyway, it doesn't have a digital out, but if your dac is USB it will be no problem. Or you can get something like the m-audio transit to feed your dac. Theres a thread on head-fi right now for using this thing as a transport.
Anyway, I'll have one in a couple weeks. I'll be using it as my transport. I'll let you all know how it works out.