Yes, your preamp in your case would do the converson.
I guess I am trying to find out what is the best way of making the connection, Digital or analog. And when would analog pass-through be better?
Best to keep the info in the digital domain as far as possible. I would not worry too much about which dac is better. It is a chip, dime a dozen.
Unless you can evaluate it properly, you will not know, NOR will a dealer that has a financial interest in his recommendations.
Your energy is best spent worrying about your speakers and room acoustics.