I have the same DAC, the Teac UD501 and the Teac AX501 integrated amp, both these components are my master bedroom system.
First off the "best" setting is when the DSP icon in MC is blue, this means there is no added DSP processing.
The Teac UD501 is a very good DAC for its price, it will stream PCM from SACD/DFF, etc at all standards up to 384kHz with no DSP conversions. This means for the vast majority of commercially available hi-res files you will not need ANY DSP processing from MC. If you buy (or download) hi res audio the UD501 will handle it without any need for MC to convert it. But the same signal path is true if you are playing regular 44.1 16 bit flac files, or 24/96 or 24/192, etc. you really dont want to upsample, upsampling doesnt somehow "add quality", in contrary it can hurt and at best do nothing.
My master bedroom system is as follows and it sounds incredible:
SACD/DFF/DSF/FLAC files on home network --> Microsoft Surface Tablet (in wired docking station) --> Teac ASIO drivers --> USB3 --> UD501 --> XLR Balanced outputs (double ended buffer amp for 4 volt swing) --> XLR balanced inputs --> AX501 Integrated amp --> Golden Ear AON2 speakers with Golden ear Forcefield 3 subwoofer crossed over about 70Hz. Room is about 50% reflective 18x13 foot rectangle.