For the sake of all those who responded to this post, and for those who find themselves in my position down the road, I figured I would write a followup.
Suffice it to say, my original budget of $1,500 was doubled and then doubled again before I was done, but the end result is astounding! I ended up going with the VPI Classic turntable (new) which came with the JMW 10.5i tonearm. I also purchased the HRX Center weight and the periphery ring clamp. I opted to go with the Dynavector 20x2-H cartridge (to mate with my MM phono input on the KW500).
Then to top it off, I got the dustcover, carbon fiber brush, VPI 16.5 record cleaner, solution, stylus brush and isolpads. I spent about $1,200 on LPs to get the collection jump-started.
NOTE: Due to a mis-communication with my VPI dealer, I did have the 20x2-L mounted for a few days and it sounded a little better, but due to the gain mismatch, I had to crank the amp WAY up to the point where there was too much noise so it was swapped for the HO version)
So, in the end, I have a sound that I never imagined possible without major component upgrades in my digital front-end or speakers (and by major, I mean at least 3-4x what I spent on the analog front-end) . Soundstage is wider and deeper, tonal accuracy is dead-on and imaging is extremely precise. Vocals sing like nothing I've EVER heard in digital before....and all of this is with a moderate Analog setup...not a $25k high-end rig!
Now, I suppose it would be easy to say that my digital front end was inferior, but the Modwright Transporter is considered a pretty decent digital front-end by most standards and this rig flat-out smokes it. I mean, to the point where I'm thinking about going exclusive analog in my main rig and leaving digital for the "convenience" listening elsewhere. The modwright is definitely going up for sale...jury is still out on whether I keep the stock transporter or not...
The record cleaning is a bit time consuming, but I've gotten the hang of it and once I get in the groove, it won't be a big deal at all.
As for background noise, it's a non-issue. For the new LPs I've bought that have been immediately vacuum cleaned on the 16.5 and then brushed before/after every play, they are virtually silent, even between tracks. For the used LPs I've bought, they are a bit noisy between tracks but once cleaned and brushed, the surface noise is virtually inaudible during playback.
Thanks again to EVERYONE who helped me get through this (special thanks to Raquel for the added offline help). I can honestly say to anyone from my generation (I was born in '79) who more-or-less grew up on cassettes and CDs, there is nothing quite like vinyl if you've got the funding and the system to back it up. If you love music and you love good sound, it's not a matter of "if" but rather "when" and "how".
-gh0st