MP3 is the bastard offspring of Dolby B!  :slayer:

Save your (hi-fi) soul while you still can and use FLAC or APE for lossless compression onto a HD.

This may have already been mentioned; both are excellent audio codecs and available here http://www.dbpoweramp.com/

As for a good and reasonably priced DAC try the M-Audio Flying Cow.

24 bit delta-sigma conversion for £149. http://www.dolphinmusic.co.uk/d2/page/shop/browse/category_id/1d13065590cd8fe87f31bf6fce1fc155