Yes, the CD-77 has a 16-frame buffer (or 512K Bit of Memory). That said, nearly all CD players have a memory buffer of one form or other. This buffer is used among other things to allow for error correction if the data is read incorrectly.
The error correction, IF implemented correctly recovers the original data through the use of redundant data written to the CD in almost all cases. This process does NOT "interpolate" but actually recovers the exact data originally written on the CD.
The necessary calculation may however take a short time. Without a large enough buffer, the timing of the data would be effected negatively. Only in case of gross problems does the error correction fail and then ALL CD-Players, even computer-based ones or software such as Exact Audio Copy, will first attempt to interpolate samples that cannot be read correctly (in many cases the software will first attempt to re-read the samples several times) from samples before and after the affected area.
The data transmission from the drive to the DAC is timed by the clock supplied to the CD-Transport or generated in the transport itself. The spindle motor servo keeps the buffer normally 1/2 full and therefore is linked to that master clock indirectly.
If the master clock driving the transport is accurate and the buffer large enough (8 frames or more) the output from the memory buffer is "jitter free". Some chipsets designed for portable CD Players have a larger amount of memory, to provide "jog proofing". This means that even if the player is violently shaken and hence mistracks, several seconds of music are in the buffer and the player normally can re-acquire tracking before the buffer runs out.
Other than this (which is of no relevance to a CD Player used at home on a solid surface) there is no further advantage from excessively large memory buffers and such buffers usually slow down operation, by delaying the time from pressing play to hearing music by the time needed to fill the buffer, track skipping etc is equally delayed.
The situation changes dramatically if we use a separate Transport and DAC linked via S/P-DIF or AES/EBU cables. The problem when using a DAC with an S/P-DIF or AES/EBU input, which combine the data and clock is that the DAC itself must recover the clock from the datastream, which is not a very accurate process and made more problematic by the specific way the clock is modulated to carry the data.
To address this significant problem, additional memory buffers have been occasionally used in the highest "high-end" DACs, both pro-audio and consumer audio in order to allow a local clock which is NOT PLL synchronised (PLL = Phase Locked Loop - a process analogous to Negative Feedback, except in the time domain).
The clocks between CD Transport and DAC may now differ to a small but significant degree. The CD Specification allows +/- 1000ppm or 0.1% deviation, meaning that up to 1 in thousand samples would be "too much" or "missing" per second, so the memory buffer must hold many more frames than the one in the CD player.
In fact, it needs to be able hold around 44 frames per second playtime of CD. Thus the minimum memory buffer needs to handle around 210,000 32-Bit frames of under or overrun and needs at least 2MB in size to accommodate this.
Further, the buffer would need filling with 210,000 frames and would introduce around 5 second delays between data being read and received on the audio output. As no "off the shelf" solution exists to provide such a memory buffer, it would need to be designed from ground-up.
We hope this brief explanation has shed some light as to why DACs very rarely have memory buffers (no simple and readily available solutions) and CD-Players always have them (< 1KB required to work properly and built into most commonly available chipsets).
The key to high sound quality is not in the size of the memory buffer, but first in the implementation of the mechanical system to maximise the correct reading of data followed by the error-correction routines, which requires extended routines beyond the original "red book" specification to correctly recover the original data.
This correct and original data then needs to clock into the DAC with a precise, jitter-free clock, so following the mechanical implementation of the drive, equally important is the master clock for the CD player.
In summary, yes the CD-77 as a one-box processor, has a more than ample 16-frame memory buffer but so does almost every other compact disc player. However, DACs need much larger memory buffers but due to the lack of a readily available solution, very few actually have a buffer.