Upgrade AVP or separate preamp/DAC for 2 channel?

Definitely go the 2 channel preamp route. It will significantly outperform any avp. So much so I scrapped multi channel all together for both music and movies.

If you're serious about 2-channel definitely go with a stereo preamp to handle the front L/R speakers and use the Onkyo to process the center/surround channels. The preamp can be one of the most important influences on the kind of sound you get from your system, and most good stereo pres (and obviously the ARC) will trounce what you get out of all but the best AVPs.

I'd just be a little hesitant to lock into the DAC section of the DSPre. As good as it probably is, the DAC world is progressing so rapidly it might be better to get a separate pre and DAC so you have more flexibility to upgrade the DAC going forward. ARC is great, but at that price level you should try at least a few others (in your system if at all possible) to see what really works best sonically for you in the context of your system. Best of luck.

Just remember that (with a couple of rare exceptions), your 2-channel preamp won't have room correction and, more importantly, will make it very difficult to integrate your subwoofer. If you don't need your sub for 2-channel, I agree that a dedicated 2-channel preamp is the way to go.

Very helpful replies. Thanks!

The separate 2 channel route is clearly favoured, but Mateored's point re room correction and sub integration is a very good one. The Denon AVP allows both sub control for 2 channel and XT32 processing for 2 channel.

So the comparison for 2 channel would seem to be: Devon AVP with XT32 processing and subwoofer vs separate 2 channel preamp without processing and subwoofer. Given I have the smaller 1028 Electras, I think the sub is quite important for 2 channel.

Soix, you mention that 2 channel preamp would be better than all but the best AVPs. Do you put the AVP into that category? if not, what AVPs are you thinking of?

This is a tough one!

Been there, done that. When it comes to 2 channel, nothing is better than a dedicated 2 channel preamp. Your main spks are very good floors stander that capable down to 34hz so no worry there. Not a lot of 2 channel music matetials that have bass in the 20hz region. I don't think you need sub unless you listen to pipe organ or a heavy bass lover.