I have read this debate with a great level of fascination. Although Ethan is a friend of mine, and we are often on the same page about audio issues of this nature, Emir presented a lot of meaningful facts which have merit.
Some people MAY be able to hear certain distortions that others aren't trained to recognize. In a way, it's analogous to the existence of God. Some swear by the existence of God, others say they cannot perceive it therefore it does not exist.
When Ethan presented his test of 3 digital recording systems last month, I was actually quite shocked that I could hear a difference between all three files (once he fixed his mistake with the duplicate files). While sorting out the low-end DAC was easy because of the noise, I discovered something different about the IMPACT in the recordings between the two higher end DACs. One had definate impact and the other was more restrained. I think I was hearing a difference in linearity of the two, causing subtle, but definate dynamics differences.
Another more extreme example was my Ultimate Fireworks Video, which I recorded in 24-bits, on the launch site for a fireworks display. I played with this recording on 3 different systems. All were "high end" for their type of device. Two were internal computer cards. One of them sounded gritty and granulated to the point where it seemed like 100% THD on the preamble before the fireworks, which was peaking at -85dB in the recording. The National Anthem was playing on a car stereo, 600' away, along with other ambient sound from the middle of an airfield at Danbury Airport, where the launchers were situated. The other computer sound card did a much better job reproducing the ambient sound, though there was much noise and clock buzz, etc. Finally, the high end pro gear that recorded it was used to play it back, and once again it was like being there.
With regard to jitter affecting s/n, this may explain why going from 24-bits to 16-bits with NO dither, resulted in the introduction of hiss where none was audible in the original 24-bit recording. Somewhere during the software conversion, there may be the equivalent of jitter being introduced into the resulting file, which is the only sensible explanation for this noise being introduced by merely converting the file to 16-bit. I experimented with all of the dither types and spectral shaping curves and eventually found a combination that was quieter than "no dither" on the converted file, but the introduction of hiss by merely converting the file was still somewhat baffling to me.
DACs DO sound different, and often vastly so at very small signal levels. At normal music levels, they can definately affect the dynamics, as I discovered when listening to Ethan's 3 test files on my reference system.
BTW, last month, the DAC on the left channel of my Denon DCD-590 started sounding 'tizzy' in the left channel and I troubleshot and played the disc on my Oppo and it sounded good again. So the DAC or some component related to it has gone south in the Denon player. It was audible with my Bridgeport Symphony recording that I produced in Nov 2008. Had I had on a pop/rock CD, it would have gone unnoticed.
Anyway, great and stimulating debate guys!