How Does Digital-Analog Audio Conversion Work For Multichannel Streams and Compressed Master Surround

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I've been in the market for a couple external DACs that output surround audio (5.1 or more), but I'm having trouble understanding exactly how it works.

I assume most (if not all) DACs will be able to decode LPCM streams, as well as various codecs like AC-3 and FLAC. And I assume that these streams will be sent straight to the DAC like a sound card, without being interfered with by other software.

But what about compressed master audio like Dolby TrueHD and DTS-HD streams from BluRays? If I play a BluRay in my disc drive, it will open in PowerDVD 10 and there are various options for audio output. The only one that I think I fully understand is as follows: Pass the master audio stream through an HDMI connection without any modification, for a receiver to later decode. Otherwise it seems that the software decodes it? Or is it decoded by a sound card? If I used a DAC would it be able to pass that stream to the DAC untouched or would it convert it to something else like LPCM before passing it on to the DAC? This is all so confusing.

Do any of you think that it might be better to get an HDMI audio receiver and output all my audio that way? I have an NVidia Quadro M4000 graphics card that seems perfectly capable of outputting hd digital audio. In that case might my GPU actually act as a sound card and convert all my audio to LPCM before passing it to a receiver through HDMI/DisplayPort?

If anyone has understanding on this subject, PLEASE HELP ME.
 
Solution
I assume most (if not all) DACs will be able to decode LPCM streams, as well as various codecs like AC-3 and FLAC. And I assume that these streams will be sent straight to the DAC like a sound card, without being interfered with by other software.

Depends. In most cases, these formats will end up going straight to the DAC, but some less supported formats will be decoded first in software.

But what about compressed master audio like Dolby TrueHD and DTS-HD streams from BluRays? If I play a BluRay in my disc drive, it will open in PowerDVD 10 and there are various options for audio output. The only one that I think I fully understand is as follows: Pass the master audio stream through an HDMI connection without any...
I assume most (if not all) DACs will be able to decode LPCM streams, as well as various codecs like AC-3 and FLAC. And I assume that these streams will be sent straight to the DAC like a sound card, without being interfered with by other software.

Depends. In most cases, these formats will end up going straight to the DAC, but some less supported formats will be decoded first in software.

But what about compressed master audio like Dolby TrueHD and DTS-HD streams from BluRays? If I play a BluRay in my disc drive, it will open in PowerDVD 10 and there are various options for audio output. The only one that I think I fully understand is as follows: Pass the master audio stream through an HDMI connection without any modification, for a receiver to later decode. Otherwise it seems that the software decodes it? Or is it decoded by a sound card? If I used a DAC would it be able to pass that stream to the DAC untouched or would it convert it to something else like LPCM before passing it on to the DAC? This is all so confusing.

It depends. In some cases, the media player you are using will decode the audio format into LPCM then send that out to the DAC, but in some cases the soundcard will do it. As a general rule, if the soundcard can decode the stream, let it do so.

Do any of you think that it might be better to get an HDMI audio receiver and output all my audio that way? I have an NVidia Quadro M4000 graphics card that seems perfectly capable of outputting hd digital audio. In that case might my GPU actually act as a sound card and convert all my audio to LPCM before passing it to a receiver through HDMI/DisplayPort?

When you use HDMI, you are pushing the decoding and analog conversion to some other device. In this case, your GPU would just send the audio stream untouched to a DAC at the other end of the connection, which would decode the audio stream to LPCM then convert it to analog for playback.
 
Solution