How can I improve my Sony SCD-777ES for red book

The external DAC route will yield the best results on CD's. If you go this route, I recommend that you get the digital output and clock modified in the transport. Here is some more info on why:
http://www.positive-feedback.com/Issue14/spdif.htm

A great DAC, even stock is the Benchmark DAC-1. It has improved a lot in the last year. With mods, it will go way beyond "nice". It becomes hard to beat, and will probably beat out the SACD, even with mods.

I second Billspecfoc's recommendation. The VSE Level 5 mod takes the 777ES to an entirely difference arena of performance. I respectfully disagree with Billspecfoc in one respect---the SACD playback is transformed to level where it is as enjoyable as my vinyl system. RBCD is transformed significantly and, where I would probably agree with Billspecfoc, the gains in RBCD are greater than in SACD, but overall SACD playback is still superior to RBCD---by a small but significant margin. This, of course, is my opinion---however, I don't think there is any debate about the fact that the VSE mod transforms the 777ES.

It depends on whether you wish to persue the dying SACD-route further or not. For an improvement in red-book only, I would try a Benchmark DAC-1 for 1000 $ or Grace M902 for 1700$. Already the Benchmark should give you a huge improvement in red book CD-listening.

I AGREE WITH Nrchy . I HAVE A SCD-777ES THAT RICH OF Audiomod PERFORMED HIS TOTAL EVERYTHING MOD. I COULDN'T BE MORE SATISFIED. BOTH SACD AND RED BOOK ARE RAISED TO SOTA LEVEL. SKIP

The more you mod the better it gets. You'll get more bang for your buck. You won't find an SACD/CD player that betters SACD and redbook unless you spend much more.

The DAC options might give you the best of both worlds, but you'll need a digital cable, a shelf on your rack and maybe a power chord, so it depends if you want to hastle with all of that. When it's all said and done, you'll probably get the most bang for your buck with mods. My XA777ES modded sounds good enough to where I don't crave tubes. Prior to that I didn't think I'd ever keep a SS CD player. Or another option is getting a good redbook player for $1,500 -2,000 used.

Good luck and keep us posted what choice you make.

Rob