Just use the latest version of Foobar2000 (0.9.whatever). Those who are recommending earlier versions are fooling themselves.
DirectSound is one of the output options for most music programs (e.g. Foobar2000). If you are using Windows Vista or 7, DirectSound will be just fine. If you are using Windows XP, however, I recommend trying KernalStreaming. Forget about ASIO for now...it, like KernalStreaming, provides a way of bypassing DirectSound, but is generally more problematic, and few devices support it without some workaround.
I don't recommend using WAV or AIFF because 1) the files are larger, 2) they don't sound any better than a compressed format like FLAC or ALAC, 3) they lack proper tagging support so they are more difficult to deal with, and 4) they offer no indication of when the file has become corrupted due to hard drive problems (which is more common than you might think). Use a lossless compression format (I prefer FLAC) and KEEP BACKUPS OF YOUR ENTIRE COLLECTION ON A DIFFERENT COMPUTER (OR BACK-UP HARD DRIVE).
Also...a lot of so-called "experts" will tell you all kinds of things about computer-based audio. Most of them are just parroting something else they read on the internet. Make your own decisions about what sounds better (e.g. FLAC vs. WAV, DirectSound vs. KernalStreaming, Foobar2000 0.9.x vs. 0.8.3, etc.), preferably using blind tests (let a friend help you out with that to achieve some sense of blindness on your, or their, part). If you read about A being better than B then you will think you are hearing it when you try an A/B test...blind tests are the only ones you can trust, in my experience.
Let's see...what else...DACs in general are overrated as far as their significance in the overall sound of your system. Yes, they are important, but keep in mind most of them are based on the same few DAC chips, and therefore the sound differences between them is surprisingly small (blind tests will help you make this determination for yourself). This basic fact being brought into the light is Steve N.'s worst business nightmare, but it's the truth. Here's how I'd rank the importance of components in a computer system:
1. Speakers/Headphones - 80%
2. Amp - 12%
3. DAC - 7%
4. Cables and Power Quality - 0.75%
5. Software, Drivers, OS Version, Audio Data format - 0.25%