I agree a stand-alone DAC makes a lot of sense when upgrading (provided you have a good transport)
But for dedicated players, I would steer clear of DVD players altogether and go for something like a Cambridge or NAD, or if you like something a bit more forward and detailed, a Rotel RCD 1070 or RCD 1072
They offer a lot of performance for the money when purchased used. I think they are around $350 now, or half of the original selling price.
From this review of the 1070:
http://www.tnt-audio.com/sorgenti/rotel-rcd1070_e.html
"The 1070's midrange and bass are excellent, with pinpoint definition from drums to vocal harmonies. I'm able to pick out individual instrument sounds, for example the sound of fingers deadening the sound of a triangle in the middle of a symphony, picks on strings, the live sounds of a stick on a high-hat, that I don't recall really hearing with previous Rotels in their prime or with any DVD player that I've used. Hey baby, it's a groove thing that the 1070 has down! This is a level of sonic sophistication that was quite simply impossible in a one box CD player made even 5, let alone 10, years ago at any price. "
and this review of the 1072:
http://www.goodsound.com/equipment/rotel_rcd1072_2009.htm
"How did the Rotel RCD-1072 sound? In a word, vibrant. In another, enthusiastic. Or, in two more, incredibly detailed. This player was no aural wallflower -- its sound sparkled and glimmered. With the right speakers and associated equipment, that can be a very good thing; but with the high-energy midrange of my NEAR speakers, it was sometimes too much of a good thing."