Is my dealer lying to me?

I agree with Natalie above. She is giving you good advice. I think that the better question is: "Is my dealer giving me good advice or just trying to make a sale?"
It sounds like the advice is questionable at best. With the current state of your system, you may not be able to hear differences between CD players, even if they are $2,000 apart. If your speakers, amp, preamp, and cables are not up the the level of the front end, then you will not be able to hear the difference between a mid-fi CD player and a high-fi unit.
My advice it to wait until you have good speakers, amp, etc. and then go shopping for a CD player. Even the higher end DVD players ($1500-$3000) take a back seat to a good CD player for the same money. Another good reason to wait is what's called "system matching". Aside from the cables and interconnects, it gives you the best opportunity to balance the sound of the system to suit your tastes. Some CD players have a laid back sound and some are more aggressive; if you have bright sounding electronics or speakers you may like the laid back sounding CD player better. Lastly, try to set a budget for the whole system, and that will determine what you can spend on each piece. If you are planning a $10,000 system, then you can afford more than $400 for your CD player. If your budget is $2500 for the system, then maybe a $400-$500 CD player is perfect.

D500 sounds as good as an Anthem CD 1 you must be kidding.Your system must be very lacking if you cant tell the difference.I had both units here.I owned the CD1 was trying a d500 for a second system.it was found lacking and nit good enough for the second system.I tried it in the big rig and it really made the Anthem shine.
Come on people Cambridge is not HI FI.Poor build quality to boot.
One of the most respected dealers in my area has droped the line.To many reliability problems.

I completely agree with Audiopath. You need to decide where you are going to take your system in the near future. It sounds like you will upgrade everything over the next year or so. If that's the case, you'll need to buy a CD player that fits your future system, not your current one. You probably won't hear significant differences between CD players in your current system. That will change when you have better amplification and speakers.

You also mentioned Arcam. I have the Diva CD92 and can tell you that it is an excellent player and much better than the Pioneer DVD player I was using previously. Spend a little more now so you won't have to upgrade again in a year or two.
Good Luck.

Celtic66 is absolutely right. I have experienced severe flak in this forum for saying that most audiophiles have a tremendous need to believe that $$$ = better sound 24/7. There are many "deals" out there in new equipment. Equipment whose price/performance ratio is outstanding on its own, but, and more to the point, that offer very high sound quality that should leave most everyone, except died in the wool upgraders, satisfied for years to come and that could leave time and money for recordings; which is what the whole thing is about in the first place. I will spare everyone the anecdotal evidence I can think of which tends to demonstrate that if an audiophile believes he/she is listening to a mega-priced component while in fact some lesser priced unit hidden somewhere inside a cabinet is playing, he/she will quite often wind up with egg on the face.

As I suspected, this topic is drawing debate, some of which -- inevitably -- focuses on the merits and demerits of DVD vs. CD players. I must humbly disagree with Natalie's commments, though she is certainly welcome to her opinion. Major Japanese manufacturers have been producing some excellent higher-end equipment for many years, and the Pioneer Elite line is certainly in that group.

I have been a serious audiophile since the mid-1960's, been a member of several audiophile clubs, and have twice supported myself professionally by selling high-end audio gear. That does not mean that my opinion is the final word, but it does mean that I've had a lot of opportunity to listen to and objectively compare a number of brands of CD and DVD players. A well-made, upper end (as opposed to high end) DVD player often has a heftier power supply than many CD players, and most of the DAC's used in both CD and DVD players are made by the same manufacturers (Motorola, etc.). Therefore, choosing a combined DVD/CD player not only makes fiscal sense for many buyers, but practical sense as well if you have limited dollars or limited space.

As I mentioned in my first post, I worked for some years for Spectra-Physics, one of the major laser manufacturers in the U.S. Lasers for DVD's and CD's are virtually a commodity today, as are DAC's and other processor chips. This isn't to say that there are no quality differences -- there are -- but pricing is based mainly on quantity, and as someone above noted, manufacturing costs are largely a function of volume. Hence, many of the boutique high-end companies that virtually hand-build their products -- but who still buy the component parts from the same manufacturers as high-volume builders -- cannot compete directly on price with larger electronics firms.

Ultimately, you should audition several units IN YOUR HOME -- both CD players and DVD/CD players -- and let your own ears decide. As Pbb noted in the preceding comment, don't fall for the high-end argument that more $$$ = better sound. Tain't necessarily so........