I'll start off by saying that I'm an avid music fan and currently own a Klipsch 2.1 promedia setup (nice, albeit needs to get upgraded!). At the moment, I am looking to start up a new setup, however much research is neccesary. I'm currently reading forums and information pertaining to audiocoustics/whatnot and learning as much as possible. However, I'm just starting and have a long way to go =)

What i'd like to do is get a nice soundcard that goes to an amplifier/reciever which powers home audio speakers/subwoofer. What i'm unsure of is how a computer handles audio and how much actual sound quality i'm losing going through a soundcard regardless of its quality. I rarely watch movies (i'm sure this would change with a nice surround sound setup =), so my main worry is being able to have an upgradable setup that I can expand on.

However, since I'm fairly undecuated in this realm, I'm not sure if the layout I'm looking at is superfluous at all. From what I know currently, I'm assuming the soundcard spits out to the receiver a signal it can understand (digital/analog), and the receiver does the same for the speakers. Am I missing anything or confused? If not, what hardware do you recommend. <- This type of question seems to start some mass hysteria, so I'll add in some limits =)

I have plenty of time to work on this system, and I'm probably going to have a starting budget of ~500 dollars. Currently I own a SBLive 5.1 X-Gamer (blech, but it works), and the aforementioned Klipsch 2.1 set. What should I replace/buy first?

When your computer is playing the wave it produces a digital stream of bits. But then it has to be converted to analog to be able to be played on speakers. This Digital to Analog conversion phase determines most of the quality. Either the soundcard will have its own DAC or it will have a Digital out and when you connect it to a receiver you'll be using the receiver's DAC. There're many DAC's with different resolution and sampling frequencies. Then comes the amplification which also contributes to some quality loss/coloration. Amplification is necessary because the analog signal your DAC produces is not strong enough to drive your speakers. And that's the other step which costs.

I would suggest get a decent soundcard with quality DAC, probably USB because it's platform independent and free of interference, and an amplifier (not a receiver). A receiver has superfluous circuitry for tuner, etc. that's why it will have lower quality amplifier for the same budget. And most receivers are aimed for common listeners and do not care for maximum quality DAC components. They also look quite bulky and ugly. This should cost around $400.

I personally have a Stereo-Link sound card (other USB soundcards: 1,2). If you want multichannel output you'd be better off with a PCI card probably. I'd also recommend the AudioSource Amp Two: review 1, review 2. I got one for around $150. But it doesn't have a subwoofer out.

IMHO most dramatic improvement comes from upgrading the speakers and dealing with your room. Great thing with using your computer for music is that room correction comes 'free': DRC, instead of buying a megabuck TacT machine.