What's the best approach?

Seriously, what are your goals for the system? Is it to be 2 channel or surround? What's the budget? All of these are important questions that your have to answer before meaningful advice can be given. I am also a believer in the "source first" school of thought, but all of the links in the chain are important.

The source is a good as any place to start if you just remember you don't have to break the bank to get a great sound.

This is my succesful cheap guy formula: If your room is of good size,

1)buy a used Apogee,
2)buy a cheap Jolida 100 CDP,
3)buy a used PassX
4)uncork a rare bottle of wine
4).... and die happy.

At least that formula worked for me through several transformations and improvements. :-)

It helps to go out with some reference CDs and educate your ear as to what speakers of different designs will and won't do. Falling in love with a speaker helps to clarify a number of other issues, especially if you are fortunate to fall in love with one you can afford and will work in your listening environment. Be patient. Research like crazy. Stereophile, Absolute Sound, audioreview, audiogon and audioasylum all have their place. Joining an audio club will expose you to resources in your area you might not be aware of. Good cables, premium tubes, power conditioners, designated outlets all make a difference. Analogue does sound better, but it's a lifestyle choice.
At the risk of stating the obvious, don't overspend on the hardware. Your emphasis should be on the software. There are all kinds of great new/old artists out there waiting to be discovered. As was said in The Red Shoes: "The only thing that matters is the music."

Thanks for the responses so far! One clarification, I did update the CD player about 4 years ago to a Sony CD/DVD player of medium quality. And, I plan to replace all the components.

As for a goal, 2-channel first and foremost, but may expand into HT later. But HT should not be a consideration right now.

As for budget (my wife's not reading this...)
Speakers - $2800 (new or used)
CD Source - $1500 (new or used)
Pre - $1500 (used)
Amp - $1800(used)
Or some combination that totals about the same.

Mrwigglewm,
I've been doing a tremendous amount of research and listening as much as possible. Best I've heard so far is Proac Response D15 with Naim electronics and CD5, very realistic (gave me that "being there" feeling). So far, the D15 would be my speaker of choice.

But I digress. The question is really about the process one follows to build a quality 2-channel system from scratch, since the choices for components are beyond counting…

Thanks so much!

With limited exposure to various electronics, It would be wise to consider a system based an a single manufacturer. This would in theory resolve the issue of component matching. For instance, If you plan to go with the Proacs, you should consider the ARC products at your price points. Likewise, since you pleased with the Naim products, why not go all Naim. A CD5/82/250/D15 system would be quite awesome. Used gear would only extend your budget a little.

Good luck and welcome back to the High-end fray.

Matt