Is this a reasonable Audiophile Mac-based Server?

I would test your DAC with another software and PC than iTunes and your mac mini. There are many programs that play music....surely you can find something and just test to see if you get drop outs...in which case it would lead one to suspect the DAC.

Is there anything else that might be hogging the USB bus...do you have a dongle and wireless mouse or something plugged into USB (printer/scanner)that might cause latency in the USB port?

S789F ... I had the EXACT same problem last month with the exact same set up. It was a digital locking issue with the Bel Canto. My solution is below ... I also went to Radio Shack and found a shorter USB cable with gold plated connectors. I don't know if that helped, but everything works perfectly now with no drop-outs.

"I think that it is a digital lock problem as the first decimal point in the display lights up just before I get a drop-out or pop. Hold on, I am going to try something ...

... I think I have found the problem. I connected my USB cable directly to the Mac Mini, instead of going through the USB Hub, and the drop-outs have almost completely disappeared. I am now using a 20ft USB cable ... I'll try a shorter one and see if that removes the remaining pops.

I guess the Benchmark has better digital locking as it was able to lock on with my old set up without issue. Anyway, this looks like it is going to solve the problem ... now to spend a couple of days doing an A/B comparison between the two ..."

thanks pwfletcher,
i really hope its not a prob with the dac. i've talked to bel canto directly and they think the issue is with the mac.i tried a little experiment which was using my dvd player as a transport feeding the dac. seemed to work fine! connection made with digital coax. next i tried using the mac as the transport (no rip, just playback). no luck, same results- does the dac read usb and coax differently?
I just got off the apple site and apparently it sounds like itunes 7.6 might be the issue. many people complaining about similar problems. (skipping, drop outs) i tried trashing the itunes app., then reinstalling it. - no luck -
man, it would really be nice to get to the bottom of this.
oh yea, apple care hasn't a clue! ?????????

Go here to get an older version and try that

http://www.oldapps.com/download_iTunes_mac.php

I still don't believe that toslink is inferior. If all the bits get there and the interface is designed properly how could it be inferior. It has to be a problem with the DAC or jitter from the source if it sounds different. Perhaps the DAC designer figures no self respecting audiophile will use toslink so they don't put any effort in to it. These comparisons I see prove nothing about toslink, just about toslink on the particular DACs and sources used in the shoot out.

That said if the DAC you choose does have an inferior optical input then you should use another input.

As Pwfletcher says: Plug the USB cable directly into the Mini and not a hub (if you are going to use a hub make sure it a powered one with its own wall wart). Because a) it will have direct access to the USB and because b) it will have sufficient power - remember USB carries 5v.

Yes a DAC will probably see USB differently then coax. Coax is coming in SPDIF, USB is coming in USB and then has to be converted to SPDIF.

Based on everyone's comments it is starting to sound as though the Bel Canto is very sensitive to signal level.