Question: DAC too hot & want to add sub

I have just started to get into non-headphone listening and wanted to get some recommendations for my 2.1 setup.

My current setup -
Speakers: Ascend Acoustics 340se for L/R.
Transport: Sony dvp-s7000 > Coax
Dac: Highly Modified Zhoulo 2.5 > 6 Channel Direct (L/R)
Amp: Harmon Kardon AVR500

So far sounds great, really immersive but the DAC signal is alittle too "hot" and I dont get alot of play on the amp potentiometer. I also want to add a small sub (condo listening).

1. Would a preamp able to attenuate a "hot" Dac?

2. What is the recommended method of adding a sub?

So far I think its:
A. Add preamp which has sub out and can cut low frequency to main speakers. Like Parasound 2100 but a variable crossover for main would be great.

B. Use sub's own crossover and match the cut off frequency of the main speakers. This also presents many options, as I am bypassing the AVR's digital controls; I cannot set main speakers to small/large and am not sure if the sub pre-outs also work on the AVR/amp. Worst case I can use sub's speaker inputs from amp to sub then to main speakers which would filter out the low frequency.

C. Buy/build active crossover.

Budget is around 500-700.
Any advise much appreciated.
I think the AVR500 may be the culprit, so yes, adding a GOOD preamp would help, perhaps a hybrid integrated would be your ticked. Better quality preamp and amp (or integrated) would also result in better tonal balance with more bass and less hot treble.
I generally agree with Arni but would add that the room acoustics could also be making the sound bright...
The sound im hearing from the setup so far good; kinda warm but yea im sure better amp would help (looking at building aleph-x). But the "hot" im referring to is not the highs, they are very clean and bass passages are decent; the speakers go up to 45hz and want a subwoofer for the extra lows.

I added a zapfilter my dac and replaced all power supplies with shunt regulators; I think the zap filter is outputting too high of a gain. My play on the amp is only couple of degrees before its way too loud. The voltage on the output of the dac is less than 1mv; so I think its the gain.