
The source of an audio system is where the content is converted from it's static storage state to an audio signal. The media, or storage method can be the grooves of a record, the magnetic signals on a tape, the pits in optical media like a CD or DVD, or the digital encoding on a hard drive or other storage device.
As I mentioned in my first post, I'll be focusing on the last media type, a digital encoding on some storage medium. There are many excellent turntables, CD and DVD players available for reasonable prices, but as these methods are moving out of the mainstream in favor of digital storage, I'll exclude them for the purposes of this site as the convenience and quality of digital storage methods effectively makes these other sources obsolete. Turntables still offer the truest analog signal, but the cost and inconvenience of this method make it an esoteric niche in audio at this point.
Let's discuss digital audio and debunk a few myths.
Isn't digital all the same? Bits are bits, right?
The short answer is no. CDs and DVDs don't store ones and zeros, they contain pits pressed onto a reflective surface that the laser reads. These pits are half the wavelength of the laser light being used to read them. As the laser passes over these pits, the half wavelength difference in distance from the laser causes the laser to cancel itself out, causing a dark spot. The difference between the dark and light spots correspond to a zero and a one.
The laser reads these pits similarly to how a turntable reads the grooves in a record. Because there is no groove to keep the laser in the right track however, there are guides imprinted on the media that the laser follows like lines on a highway. Because the laser is constantly tracking to find the correct line to follow, it sometimes hits the edge of some of these pits, causing read errors. These mistakes are corrected somewhat by error correction, but errors still exist. The portion of a CD or DVD player that reads this information is called the transport, and the portion that later decodes this information into an analog signal is called a DAC (digital to analog converter). The difference in audio quality that CD and DVD players produce is a factor of how well the device reads the disc, how well it corrects for the errors, and the quality of the DAC portion.
Transports
The accuracy with which a source reads and delivers the digital data to the DAC is critical to the quality of the audio signal. This is where digital storage methods surpass optical media. Once the data has been ripped to digital storage (more details to follow), all the errors caused by optical reading are made moot. Hard drives are fast and bit-perfect. Once the signal resides in this format, there are few opportunities for degradation. This information can be moved, copied, and played without further loss of signal quality.
Ripping
When a program rips the bits out of optical storage, there are the same opportunities for errors as you would encounter reading the data in real time from a CD player. Because of this, using error correction and a quality ripper will provide best results. Exact Audio Copy is free software which reads and re-reads the pits to ensure that the audio signal is free from error. iTunes also does an excellent job of ripping if the "use error correction" option is selected in the preferences. Because audio quality is of utmost importance, you should always rip audio data to a lossless format. MP3 and WMA formats compress the data in by discarding certain information. For portable devices, the small size makes this desirable, but for storing songs to play on your home media system, always rip to WAV, or better yet, a lossless compression format like Apple Lossless or FLAC. These formats half the size of the audio file, but retain all the audio information, this is why it is termed a lossless compression format.
DAC

Once the audio data exists in a digital format, a DAC (digital to analog converter) converts this digital information into an analog audio wave. There are many different methods for performing this conversion, so the quality of the converted signal is largely dependent upon the ability of the DAC. There are a few methods for transmitting the digital data to the DAC, all with benefits or compromises.
SPDIF is the most common method. Virtually all digital audio cables utilize the SPDIF protocol, and when you use an optical or coaxial digital cable, this is the method being used. The SPDIF protocol is synchronous, and therefore is susceptible to many of the same data errors as reading off an optical storage device, like jitter and timing errors. Sometimes I2S transfer uses the SPDIF protocol, and other times it does not. Since very few devices use I2S, we'll only cover it when a device we are looking at uses this protocol.
USB is an excellent method for transmitting digital data, as it is asychronous and corrects for errors as it transfers. These devices are cost effective and accurate. The quality of the cables is far less relevant, if at all. This is my preferred method as it is high quality and ubiquitous in availability.
Recommended Source

My recommendation for a quality source is a computer outputting digital data via USB. I use a Mac Mini with external hard drives (1.5TB). You can use a laptop or any computer and output the data with USB to a USB DAC. There are many quality USB DACs available, and we will test several of these devices to give you a range of options to choose from.
Another option is to use a streaming device to send your audio information to your system. A streaming devices accesses the audio files stored somewhere on your network and streams the audio to whatever component you plug it into. Slim Devices makes an excellent streaming device called the Squeezebox. The Squeezebox has an internal DAC to plug the audio out directly into your components, and offers a digital output to send the audio to a higher quality DAC unit. The digital output is SPDIF via an optical or coaxial digital cable. Apple's Airport Express also streams music, and offer an analog (built in DAC) and an optical digital output (SPDIF). I am not aware of any streaming devices that offer a USB out at this time. If you know of any, please let me know!The end of the line...
The source of any system ends with an analog audio signal that is fed into your components. We'll pick up where we left off with components next.