Is a pre/pro considered digtal or analog ?

Noble:
You said the sound is better using your CDP through the analog inputs of your processor. Is it good enough? There is the big question. B&K makes nice equipment for the money - usually very smooth, at the expense of some dynamics/detail/imaging. I'm listening to a B&K amp as I type this, and I'd gladly keep it rather than the Classe CA101 that I brought home for the weekend. It's just more musical.
In any event, I wouldn't dare recommend which step to take next, because I don't know your system, room, musical tastes etc. You can try a Camelot Dragon 5.1 jitter filter, but I suspect your money would be better spent on a better pre-pro. Then again, you said your CDP sounded good, so does it really need fixing? I have brought a few friends in to the nutty world of hifi, and wish I hadn't, because I've seen them suffer the same audiophile torture that most of us experience when we strive for perfection in our systems.
If you find yourself listening to music rather than equipment you might not want to change a thing!

Treyhoss and Lneilb,

The B&K Ref 20 pre/pro does have a bypass which keeps the signal analog for stereo, but it converts an analog input signal back to digital whenever the DTS, ProLogic or other processing is selected. I only use processing for movies.
My CD's a Sony S7700 DVP which I bought mainly because of the CD quality. The front channel amp's an Aragon 4004MKII and the front speakers are Magnepan 2.7s with a separate sub that can be turned on/off as needed. I play mainly jazz, blues and rock, but not the harder rock stuff.
Is the sound good enough? We're always looking for better, right? I would like the "in the room" presence and depth to be better. I agree that a separate preamp with a HT out may be the best solution - using the B&K as a processor for movies only. Maybe a good tube preamp to see what I've been missing. Thanks you guys.

Good luck!