Just imagine your computer's motherboard as a busy main road with turnings. Take first left for the soundcard in a PCI slot, take the right turn for USB, second left for hdmi. The CPU is the traffic policeman, although certain components have the right to do stuff by themselves (bus-mastering). It is also an eight-lane highway (parallel) and, to take some of those turns, the bits have to line up and be sent, one by one (serial) up or down a narrow path.
The traffic policeman is a bitch. He is quite likely to walk out in front of some audio data bits and hold them up while some video data bits take priority. This kind of problem can get so bad that the machine simply will not play audio properly, but mostly, it doesn't. The audio equipment is designed to work in and with this very audio-unfriendly environment. The essential reason for this is that audio is, necessarily, a real-time experience, but the PC design does not recognise it as such. Why? I have no idea*, I guess there is a historical answer: I only know that I suffered by it.
in case of an onboard soundcard you have a huge number of issues originating out of how the soundcard handles the signal.
Not really, no more than the whole problem just mentioned. Sound cards have been around a while. The stuff that is built-in, these days, is
heaps better than the add-in cards we used to pay extra money for years ago (Sound
blaster? Exactly.)
For example my onboard soundcard, when it's not in use, the signal drops and starts to create low level distortion and when something is played again theres a high pitched sound before audio plays again. This is manipulation of the signal.
I think this is not manipulation --- but a fault, either in hardware or software. I've used a few soundcards, including built-in; I used to use digital-out; I never came across anything like that.
Also, isnt SPDIF a lossy medium of transport ...?
No, the concept of "lossy" does not apply to the digital signal at this stage. If the original file was compressed, lossy or lossless, it will have been uncompressed by your PC's CPU. There are exceptions, such as transmitting compressed data over wired/wireless net to a Squeezebox, but that data is still very much in the
computer domain, not the audio domain.
Your operating system, quite apart from the traffic junction scenario I just mentioned, may well be
manipulating your data, and that manipulation may be unwelcome. If you want the same bits that were read from the hard disk to be delivered to your sound card, then, for starters, you need to get Microsoft's fingers out of the pie, which is why people use and recommend alternative drivers.
There are also manipulations that may happen either in software or on your soundcard that you want and need to happen, for instance conversion of sample rates where necessary. Not
all manipulation is evil.
motherboard > Dac > Amp
Vs
Motherboard > Soundcard dac > External dac > Amp
As mentioned before, please leave that
"dac" out: it is not happening.
Actually, both paths are the same, and amount to
Motherboard -->Thing that converts to audio digital format --> Dac --> Amplifier.
USB is section of circuitry on your motherboard, so (whether built- or plugged-in) is your sound card. USB is not more direct. USB may be a
Universal Serial Bus, but it knows when it has an audio device attached, and uses particular protocols to talk to it. That protocol is published; google will help you find it; it goes beyond my understanding (or need to understand).
USB is also, potentially, a very congested corner of your motherboard. It may be handling your printer, scanner, external discs, sound device, and more, all at once. Just because you're busy working doesn't mean you don't want to listen to music. With all that sharing going on, it can matter
which USB socket you plug your sound device into.
(E&OE. Corrections and disagreements welcome!)
*Yes I have

. Simply, the PC does nothing in "real time." It does a bit of this, then a bit of that, then a bit of something else, then back to this again. It communicates with hardware through
interrupts. Audio interrupts may not have the highest priority. If they have to wait long enough, the music stops.