I have a Lexicon PCM-90 permanently connected to the S/P-DIF port on my Dakota, and I use analog I/O to connect to some of my older, difficult to replace hardware. As time progresses it seems more and more that there are plug-ins that emulate my hardware sufficiently well, and if I had some spare cash I'd probably replace the PCM-90 with the Exponential Audio reverbs. For now I'm quite happy with the PCM-90 as external hardware.
I no longer remember exactly, but either 8.5 or maybe X1 caused me a little bit of grief, the external insert would just stop working, it would not allow me to select the S/P-DIF ports, but re-starting Sonar would resolve that. I can't remember the last time that happened though.
I think Craig hit the bulls eye, I mostly use stomp boxes and other hardware for sound design because I am quite happy with my other plug-ins<G>!