With all of the new Blu-ray players hitting the market with bitstream output of the new audio formats, what do you think the chances are that someone is working on a DAC that can take a bitstream HDMI input and convert it to 7.1 analog output?

I think the chances are slim at best. Unlike a stereo DAC, an eight-channel HDMI DAC runs into a lot more issues than just D/A conversion. Bitstream output will require decoding of the new formats, which takes a DSP chip that's as powerful as what would go into a surround receiver or processor (think about the Cirrus 49700 or one or more TI chips for this), after which you need to provide other DSP functions such as channel trim, channel delay, and bass management. Only then can you put a DAC into the mix. You also have to retain and pass-through the HDMI video signal. Stick all that into a chassis, provide some kind of remote (since you're likely to want to use it with more than one source and do the setup without having to stand at the front panel), and you're going to have something expensive enough to become hard to justify.

You could ditch the decoding and limit it to working with multichannel PCM, at which point you limit its effectiveness - the only player on the market with extensive decoding built in to it but no multichannel analog output is the PS3, and even a chassis that does nothing but convert the PS3's multichannel PCM to analog would probably cost as enough that a player like the BD50 (which decodes onboard and has multichannel analog output) would be comparable in price or cheaper.

Here's an interesting notion, though: a PS3 add-on that accepts its HDMI output, passes the HDMI video on, converts the multichannel PCM to multichannel analog, and has as IR input for remote control of the PS3 that then outputs Bluetooth to the PS3. The only problem here is the market lifespan - the number of PS3 owners who would need it is going to be steadily shrinking, since it's useless if you have an HDMI v1.1+ receiver, don't have a surround sound system, or don't care about Blu-ray audio.

I was looking for something like this myself and the closest I could find was this to-be-released product at $400
http://www.gefen.com/gefentv/gtvproduct.jsp?prod_id=5277

I can't vouch for it though, and if you read the thread on the forum it doesn't exactly inspire confidence:
http://forum.gefen.com/topic.asp?TOPIC_ID=2578

For the price they're asking, I think I'd opt for a low-end hdmi receiver with pre-amp outputs to use purely as an "hdmi switch" instead, at least you'd have 3 or 4 hdmi inputs.

-John

At $400 and with just one input, it certainly is a tricky sell now that we're seeing players with built-in decoding reach the market. Without decoding of the new formats, it's basically a PS3 accessory. I'm not sure why they would have tucked an 8x20W amp under the hood, either. I'd be curious to read the manual once it exists.

I have on order an Audio Note Dac 2.1 Kit! This will be for my laptop using the USB input.