The Xtreme Sound sells for about $65.99 at Newegg right now. That's in the same ballpark as a respectable PCIe sound card with a good DAC, like Asus' Xonar DSX. (The DSX costs $54.99 and sounded noticeably better than onboard audio in our blind listening tests.)
If you have a desktop PC with expansion slots to spare, then I'd say a sound card like that is probably a better buy than the Xtreme Sound. The Diamond offering has pretty disappointing analog audio quality for the price, and its digital outputs are, by definition, no better than those of onboard motherboard audio. Sure, not all mobos have S/PDIF—but there are cheaper ways of making up for it. Entry-level sound cards with S/PDIF out can be found for less than 30 bucks.
What about laptops and small-form-factor builds? For those, the Xtreme Sound may be a good avenue to S/PDIF goodness. If I had a gun to my head, though, I'd probably go with onboard audio over the Xtreme Sound for analog output. I think muddy, boomy sound is probably better than shrill, tinny audio, especially from a listener fatigue standpoint. The bottom line is that the Xtreme Sound's analog output sounds physically unpleasant, not just merely unimpressive.
If I were in charge of Diamond's audio products, I'd spruce up the Xtreme Sound with a higher-quality DAC and better audio circuitry to nip that slight background hiss. Even if the asking price had to go up, I think it would be worth it. The Xtreme Sound already has a lot going for it, and good analog output would make it a terrific little product.
For now, folks looking for a USB audio adapter with both S/PDIF out and decent analog quality might want to consider Asus' Xonar U3, which Geoff reviewed a few years ago. The U3 sells for about $40, and while it's not quite on par with a proper sound card, it still sounds noticeably better than onboard audio. It even does Dolby Digital Live encoding. Too bad about the limited port selection and 16-bit/48kHz codec, though.