Starting out. - need your counsel

(Why would a preamp unit take a high quality multichannel SACD or DVD sourced analog signal and reconvert it into digital, and then again into analog? That make no sense.)

I really don't want to play SACDs on this theatre rig. Just movies. Tapes and DVDs. I know that there are video or digital outs on the DVD player, is that how I would connect it to the pre/processor?

What do these units do with DVD video soundtracks? Can't I get something under $500?

Another good source for inexpensive Dolby Digital would be to use a receiver as your source. Most of these have 5.1 channel pass-throughs that remain unprocessed in the digital domain. I would recommend you look at the Outlaw Audio 1050 receiver. You can get one new for $500 from there website or sometimes find used ones for $350-400.
http://www.outlawaudio.com
The cheapest pre's that I have seen used are the Harman Kardan Signature 2.0 ($450 at ebay or audiogon but they all come from ubid.com) the sony tae-9000 (I think is the number also comes from ubid originally then to ebay and audiogon $700), and the Legacy Audio (is a proton) pre-amp that was selling on ebay for $275. I use a Denon 2801 as my pre (with rotel amps) and am happy with it until I can afford a dedicated system. Another idea would be to look for a older rotel pre that has a 25 pin connector and connect it to a rotel dolby digital decoder (about $500 for this but the goods are a little older). If you are concerned about ground loops then I would recommend the monster series of power centres hts 2000 or 2500. They can be had for 110-170 on ebay and they eliminated the cable ground loop in my system (this was the only product that would do it as I had cable that was not installed properly).

Patrick

A simple reciever with analog by pass sounds good. Will most recievers allow you to run separate amps through line output?

I didn't design the Lexicon, just used it...then sold it when i decided HT was a silly market and has way too many things to work out before I spend $$$ on it's gear. I have since sold the Lexicon for SF Line 1, and am happy as a pig in sh*t.

As long as the receivers have 5.1 out (most modern mid-priced receivers do) then they should work fine. You can also try ac4l.com for refurbished marantz products at pretty good prices.

Patrick