Short answer, it depends on the application.
If all you want to do is drive a $2 pair of Apple or other cheapo ear buds than the onboard DAC with the MP3 player fills the need.
Would I buy a CD Player with an expensive DAC and analog section built in? Absolutely not. Moving parts are less reliable and all eventually fail. The DAC on the other hand should last forever if the design is any good. This tech is relatively mature, with higher bit rates and word lengths comming down the pipeline. 24x96 is generally considered to be the cost effective state of the art and accurate aka indistinguishable* from analog. Bigger word length and higher frequency would move the dots closer together theoreticly approaching infinite closeness, but how much is enough to mimic pure analog aka Declining Marginal Returns.
Is a DAC just a bunch of hardware on the board? NO, there are all kinds of implementation and applications issues, and the most difficult part is usually error handling.
My systems are Vintage Mac and Yamaha amps and pre amps and tuners with Klipsch Speakers. I had a friend who is a professional musician who toured with A List bands, does voice overs for radio and tv and works as a piano teacher, and still performs locally. He listend to George Winston December on Vinyl and CD copied to my hard disk playing through a DAC and stated no noticable difference between the two (wyndham hill did great recording and mastering work totl). He summarized both as sounding like you were seated on the bench of a Grand Piano aka lifelike.
After a lot of homework and reading the forums, I decided a stand alone DAC was the way to go. There are a number of good units out there, I wanted a DAC that faithfully reproduced the recording with Zero Coloration of any kind.
There are also a number of interfaces, protocols and line rates to contend with each having its own implimentation and application issues, so robust and flexible were big for me. I also wanted a unit that would last a long time either as a table top or rack mounted.
I settled on the Emotiva XDA 1, the next Rev the XDA 2 $300 has a great feature set and price point since they sell direct and are a subsidiary of an outsource electronics manufacturing company. I beleive the Engineering is in the US but can't say for certain. I love the XDA and would buy the XDA 2 if I need another one, need and want always a tough one. Simliar product sell for around $700 to $1000 half of which is dealer mark-up.
Note this unit has a quality built in headphone amp, If you are a headphone guy I would also take a look at the Bellari A-540 tube Class A headphone amp where a little coloration may be a good thing expecially for low bit rate listening.
This is one of many tube headphone amps you can hang off a DAC.
Another tube option that gets good reviews
http://news.cnet.com/8301-13645_3-20047125-47.html
SO I was looking at an expensive Marantz CD player when a fellow I'd met once before who engineers equipment told me its pretty much all snake oil with the "DAC" advantage of expensive gear. He says the DAC in my IPOD classic is probably just as good as the DAC in the Marantz. Claims a good DAC costs no more than $20 in raw form. The rest is in a nice case and marketing.
Had me thinking that's for sure. Cant say I've had a bunch of DACs lined up to test though and they are all so expensive. Once again he assured me that's all BS. $20 the rest for connectors, casing and an expensive story.
So .. anyone have an real life experience? ... his story makes sense but again, I haven't the real life fortune of testing all the offerings for myself.