Pick one and stick with it. But the choice might not be obvious.

For example...

The analog-out of my Sony 900NS produces a much more detailed and airy reproduction of CD's than the DAC's in my 950. So, for CD playback, I always use the analog-out of the Sony going to the 6-channel bypass of the 950. (Unless I want to play with DPL2 or Neo:6)

However, the DD/DTS decoding in the 950 is easily superior to the Sony, so I use the digital output of the Sony, going to a digital-in on the 950, for DVD playback.

I agree that you only want to do D/A conversion once in the chain. But experiment -- as "da Hound" suggests -- to find out which processor is best for the task at hand.