This is a really productive discussion for a topic which usually draws flames. To the OP, don't be hasty and research all options within your budget. I think an external DAC offers much more versatility, but you must decide if that even matters. If all you listen to are discs, with no goals to change, a proper CDP is an excellent proposition. At your price point, I agree with what's been said reegarding the used market. Rega, Naim, Arcam and Marantz are all excellent names to watch for and audition.
As far as your questions regarding presentation...YES, one of the more noticable improvements will be in staging. In the sub 500 market of DACs, have a look at NOS technology. It's a nice step toward that elusive analog sound that you enjoy, and can be hard to achieve with digital.
I personally have a couple of DACs which I run a Squeezebox, computer and transports through. I think one of the best options is my 5 disc Yamaha with optical output. I can put on a multi disc collection, or just shuffle several discs and enjoy the great sound of my DAC.
Anyhow good luck deciding. Just try to audition as much as you can, and really visualize where your system is headed. This will make the decision easier.