Improve my system

How about using $600 of it for a HTPC(Home theater personal computer)? You can have a Blu ray drive included for this price. Along with a wireless keyboard and mouse.

Not sure how big you're into movies.But this will allow you almost endless use. Storing, categorizing of your movies and TV shows on hard drive. Meta data info is available free,which will give you movie and actor info at the touch of a button. Plus no more fussing with DVDs or Blu rays.

You have several online TV providers. Most of them are free,such as Hulu TV. You can watch TV shows or movies when you want. If you have a high speed internet connection the HTPC will make paying for cable TV, satellite or a DVR unnecessary.

Add a dual HD tuner to the HTPC so you can watch and record your Hi-Def channels OTA or through cable. Buy yourself a couple of large hard drives for storage and you're off to a whole other world of Home-theater entertainment.

All for less than $1000.

If it were me, I would do the following:

Room Treatments $500: I would get bass traps for the corners and panels to cover the 1st reflection points. This would improve your bass and soundstage tremendously.

Gik Acoustics makes some affordable panels.

Power Conditioner $600: This can make a big difference as well. A good power conditioner can improve clarity, soundstage, bass response, and bass clarity. One unit can handle 4 pieces of equipment (i.e. the amp, receiver, CD player, etc).

You can find these at: http://www.piaudiogroup.com/prod_filtration.aspx

Bluray/CD Player $600: Get an Oppo 83 Bluray player as others suggested. This will give you great bluray, and very good CD output.

This would leave ~$300 for power cords or dedicated lines.

I think this combination would help your system on several fronts.

Bass traps because "small" listening rooms are dominated by bass peaks and nulls below the room's transition zone or Schroeder frequency which about 300-500Hz (which is only a difference of about 9-10 semitones).

Room size (and budget) may dictate what kind of bass traps to get. Resistive traps (GIK, RealTraps) need to be pulled into the room at least 6-7" which equates to one-quarter the wavelength of 500Hz to be effective. Otherwise Membrane traps (RPG) can be positioned right against the wall where sound pressure is maximized. The Resistive traps work best when sound movement is maximized (which is at the one-quarter wavelenght) whereas Resistive traps work best when sound pressure is maximized right against the wall.