Could someone please explain the benefits of using high-priced DACs in a system that ideally outputs digital sound...
First, I believe this is a faith-based discussion about DACs. Second, there is no ideal system.
The question is whether the difference (between what a system does and suppose to do) is audible.
The goal is to reproduce the audio/video stream from the shiny CD/DVD/HD/BD disk without molesting it.
And the deeper you dig into the issue the better you understand this is much easier said than done.
Everybody agrees that digital->analog (DA) as well as AD conversion is hard (and expensive) to do right. Therefore it is a good idea to do it once and by the most competent device (if possible). It is another can of worms alltogether the quality of your wiring, sampling rate and bit depth, speakers and abilities to hear artifacts; I won't go there.
Some 5+ years ago I was part of a group (HTPC users, no audio/video -philes) that tried to set up a comparison between the Denon 3910 DVD player and similarly priced HTPC, i.e. high end. You can't call us an objective group but we tried to do double blind testing as accurately as we could. To skip the details, the result showed there was a slight bias for HTPC doing a better job in video and the same job in audio as the Denon. Nothing statistically drastic. I heard about others getting similar results with the Denon 5910, for much more $$$ than the HTPC.
Keep in mind, this were DVDs that are telecined. And since no DVD mastering is perfect, a simple inverse telecine (IVTC) often wasn't good enough and sophisticated algorithms to do deinterlacing come into play. That's what those Farodja/Reon/etc. chips are for and what drives up the costs.
With Blu-ray playback most of those problems disappear.
The video content (most of it) is stored on the disk in 1080p. Spit it out over HDMI either directly to the TV/projector or AVR in pass-through mode. The TV will do the DA conversion and regardless of how the bits arrived, they will look the same (assuming the TV is capable of 1080p).
If your AVR is capable of decoding the latest lossless audio codecs (some $250 is enough to get one), the audio chain will be just as simple as video chain. Bottom line, the number of variables to control has been reduced (when compared to the old DVD times) dramatically. Only having invested thousands of $$$ in equipment like amps can be a reason to insist on DA conversion done in players.
Diogen.