Home Theater Bypass , why am I hearing this now.

@auxinput
I knew your were the right guy :-)

By coloration , I included the averadge quality electrical isolation and vibration control of a HT processor compared to highend integrated amplifier or preamp with HT bypass.
There may be a difference in these matters between a 10k HT processor and a 10k integrated amplifier or preamp.
When using analog inputs of a HT processor , the DAC of the HT processor will not be used.
The sound quality will depend on the other components of the HT processor

But I have been wrong before ……

Oh, just re-read and figured out that you don't have a processor/amp setup yet.  You only have a AV Receiver (which is okay, but leaves a huge area for upgrade).  So, my comments:

You can't really use a "preamp HTBP" with your current receiver unless you get a separate amp for this scenario.  If you want to upgrade your entire HT, I would go with the Krell Foundation 4K at a minimum.  When you are ready to support 4K HDR video sources, you can always get the Krell 4K HDR switcher to handle this (it works with the Foundation 4K).

If you just want to do the HTBP route, you'll need to get a either a preamp/amp setup or a really good "integrated amp" such as the Kinki Studio EX-M1+ and use the pre-outs on your receiver to drive any HT movies.  Then you can go your direction with Denafrips / Prisma NP5.

I wouldn't really consider the Marantz 7706 just for "8K" support.  In my opinion, we really didn't need 4K unless you had a seriously large screen (such as 70" diagonal or higher).  What really improved things was "4K HDR" which expanded the color and brightness range.  At this point, 8K becomes almost nonsensical (but it's the next big thing so consumers will glom onto that).

If you do the Prism NP5, I would seriously consider a linear power supply upgrade (I'd recommend Farad Super 3 or even a lower cost Teddy Pardo).  This will significantly improve your sound quality for that Denafrips.

By coloration , I included the averadge quality electrical isolation and vibration control of a HT processor compared to highend integrated amplifier or preamp with HT bypass.

Ah okay. In my mind, "coloration" is a purposeful design of an audio circuit that causes a certain type of behavior or sound. This can be described as audio equipment that is purposely engineered to sound laid back or tube like or boomy or sharp or textured or lush or warm (etc., etc.). The entire 2-channel industry is geared towards many of these direction.

I think what you are talking about is compromises in the electrical parts of a HT Processor, and there are several. Pretty much most of these have to do with power supply type and design. There is a large amount of HT Processors that will use linear power supply for analog stage, but will still use a small switching power supply for digital sections (including DAC). This causes problems such as power supply jitter and lack of current that impacts sound quality. Many processors such as Onkyo / Marantz use switching power for digital sections. This is seen even on high end processors, such as Lyngdorf MP50 which uses switching power supply for everthying. The seriously expensive Trinnov Altitude also use switching power supplies (it’s essentially a computer motherboard), but they -might- use a linear power supply for audio.

One reason I like Krell processors is that they use linear power supply stages for everything (including digital). I think McIntosh processors use linear for everything as well.

The Bryston SP3 uses linear power for everything, but I think this is one of those where design of the circuit impacts sound result. Don’t get me wrong, this processor sounds very good. However, it has one big honking main power supply for analog, but then all those discrete analog circuits do not have any local power supply filter caps. This combined with what I think is a very high bias Class A analog circuit results in a sound that has probably the strongest and fullest bass I have ever heard from a processor. However, the upper mids and high lack speed and impact and it makes this seem like a very laid back sound. I just never was happy with this one (it also had an effect like I wanted to keep turning up the volume but the impact never got there).

Trying to set up one system for movies and music is difficult at best because of the tradeoffs involved but it can be very good if done well but for music a strictly two channel system with two channel components will always win the sound prize.

I just went through this. But I had processor and amps.  I added streaming DAC and Parasound p7 which has pass through. I get a big improvement for two channel listening. Well worth it. In your case go with integrated amp that is Roon comparable and had good DACs. You won’t look back.