Need a little helpful advice

The amount of "upgrade" would depend upon where you're coming from and that wasn't in your post so we'll probably all just make our opinionated guesses. My guess (or my personal preference, to be honest) might be to go with a good receiver (buy on features, etc.) with the idea of maybe adding an affordable amp at some point on the future. You kinda get the possibility of the best of both worlds that route (plus fewer connections to deal with when you're hiding them from a curious little one). There are some seriously good receivers available today, including the AGon used route. Maybe go used now and park the "savings" in an amp fund? Oh, and congrats on the little one (and be prepared for having your priorities change more than you'd ever imagined...).

Thanks for the advice Mr hosehead. Sorry if I was too vague; I figured my post was already wordy enough without going into details what receiver, speakers, bluray, etc. that I have right now. I was just looking for suggestions on which I would hear and see more improvement on within a decent budget. Thanks.
Slitty

I would go with separates as it makes upgrading easier in the future.

Stubby

If you are buying new I suggest get HDMI. This will be less limiting as you upgrade in the future.

Used, of course is another issue as you are enjoying the savings, or getting more for the same money. There is some great stuff available as people move into digital.