I don't get that either. Even though upconverted, you are just interpolating data points, not adding real data. IMO its all about the dac.
The only reason IMO it would be better is that the data through a normal cd player is being "ripped" (read) everytime you play. In the squeezebox, you do it once. With accurate rip you usually find out immediately if you've gotten it 100%. So the squeezebox should, in theory, "read" perfect every time while a CD player may not. In reality, with a decent player and good condition disc, I don't really think this is much of an issue. This is a very, very minor advantage especially given the equipment most on this forum have for cd playback.
What I meant by ‘better’ is that due to the removal of media reading issues from the chain, you are guaranteed an accurate bit-stream (with no corrections or temporal issues), which will translate into a more accurate playback chain than a transport.
Granted, its uncommon to have a transport skip or mess up a bitstream, but I have enough CD’s that take repeated reads of sectors to get accurate data (some rip for hours) that I know my PC based playback is much more accurate than my transport. And the few times I have tested that theory, I could audibly hear an improvement (albeit slight).
So even without re-sampling, a PC can deliver the bits more accurately (in terms of being exactly what was on the disc) than a player can. Also, if using the right software and hardware (good pro cards), then the bitstream clocking can also improve.
Although, in all fairness, I have to point out that one needs to be careful here, a PC that has too many interrupts and / or the audio card is on a low-priority IRQ, etc. etc. will actually sound worse than a transport. Caveat emptor…
Now, upsampling does not add information per-se, but it does give the processor algorithms more information (interpolated points) to work with and just plain sounds better IMHO. The DAC getting more points to work with is another benefit (at least on my Meridians).
This is like video upsampling, no information is added, it’s just perceived that way.