I've been trying to figure out the DAC bypass question as well. I absolutely agree that an external DAC improves the sound greatly, versus just outputting form my iMac, for example. I thought this more or less proved that the Fives' DAC must be getting bypassed via the analogue inputs. If it isn't, I'd love to know the reason why the sound is so greatly improved since I would think the Fives' DAC would cancel out the external DAC. Is it then that the external DAC is more or less acting like a filter/eq/gain booster or something?
I only stumbled across this thread trying to figure out why the Fives weren't playing back MQA. So if it's also true that the Fives' don't allow this (for reasons you cited), this reflects my experience so far as well, where my MQA enabled DAC will play into headphones but not the Fives. The Fives' DAC limitations make a clear explanation as to why, but I'm still curious why we're getting such big gains from including external DACs into the chain.