I am interested in writing a small utility to modify all audio output on OS X. I essentially want to apply a certain effect to the sound systemwide and/or via individual applications (similar to how Prosoft Hear operates).
Where would I start digging in order to accomplish this? Is this done through CoreAudio or are there other more direct option?
Core Audio plugins can achieve all sorts of things, those are probably your best bet. I notice you used the kext tag - it's of course possible to do this in the kernel, but that seems overkill.