Quote:
I figured that, in order for EQ and other stuff to work, these analogue sources would be converted to digital first.


Nope, it's all digital domain.

If you have a dodgy cable, then you could have a low-bit order noise issue that is causing the reduced quality you hear.

I did back to back tests with a friend on a Mk2 using PCM playback many years ago to compare the audio quality against a top quality CD setup. Although my hearing is damaged, he reckoned that the sound was as good as his CD setup. Hence, any degradation in audio quality is likely to be caused either by a hardware fault or by a poor rip of an MP3. Don't forget the decoders on the Karma and Car were different.

The outputs of the Mk1 were Burr-Brown DACs, top quality. The output of the 2/2A rely on the Philips DSP.

If you do go for the SPDIF, please be careful about how you do the hardware install.
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One of the few remaining Mk1 owners... #00015