I can confirm that recent version of MAD lib is not working correctly and eventually I compiled MPD without MAD support and use mpg123 instead. That was the first problem I came across with my D2Plug wanted to run MPD.
In terms of MPD configuration here is the relevant snipplet from mpd.conf
Headphone is obviously analog jack output and Applituner is SPDIF connected to my home audio set.
Any other audio_outputs are commented in my conf file.
The PA configuration is just default and I haven't changed anything as far as I remember.
It works fine now for me however I altered the pm.c to ignore deep-idle mode and recompiled the kernel.
If you come to that point I'll share more details if needed.
If you have any chance to connect any display to the plug you can check the audio under gnome. There is applet allowing selection of the default sound output. Anyway the configuration of MPD is independent of the configuration of gnome. That is a drawback that changing the volume under gnome I have no control on the volume of music played by MPD. This is not affecting my setup as my plug is also headless.
good luck and do not hesitate to ask if you have more question. I'm fine with sharing me experience.