The Creative Labs Extigy is fairly cheap, and will turn S/PDIF (optical) into analog.
As for unbalanced to balanced.... "balanced" means instead of signal and ground, you have 3 wires, where one is signal, the other is -signal (the opposite polarity), and ground. This means there's a bigger signal being transmitted, even though the voltages aren't any higher, which puts the noise down lower. And it also helps reject "common-mode" noise, since if noise is added to +signal and -signal, it cancels out later on. I can't describe it very well here. Balanced is common in pro audio, and there's some high-end car audio that uses it.
So, to convert unbalanced (RCA) to balanced (XLR), there's two main ways:
1) Transformer. This comes with the added bonus of complete isolation from ground loops. The problem here is that for decent frequency response you need a "broadcast quality" transformer, which is costly.
2) Op-amps. Use a pair of opamps, one wired inverting (x-1) and the other non-inverting (x1); put a small resistor (33 ohms?) on the output of each amp for stability in case of long cable runs. Cheap; can be done with an 8 pin dual opamp and a handful of precision resistors. No isolation from ground loops. There may be a dedicated chip that does this from Analog Devices, part of the SSM (solid state music) line of audio chips.



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