I don't doubt you heard little difference with this CDP. Your receiver is a very good sounding unit and as you know it's claim to fame is it's musical abilities. But, as Groberts3 pointed out, the AVR-350 is much better, and many have confirmed this. Rather than a five channel amp why not just sale the 300 and upgrade to the 350?
When you use the digital input your using the DAC's of the Arcam and when you use analog inputs, i.e. CD input, you will be using the DACs of the Rotel.
I was using (and still own) a Sony DVP NS999ES which has terrible Redbook CD playback, but fairly good (not great) SACD performance. I bought the Arcam AVP-700 (similar to the AVR-350 receiver with a few extras)and, like you, I found the DAC in the Arcam sounded better than my Sony with Redbook CD's.
I got sick of trying to find good SACD's and decided to find a better RB source player. After months of research I chose a new Naim CD5i ($2000 budget)and couldn't be happier. Is it the best on the planet? Certainly not. Is it the best in it's price range? Dunno? But, its darned good.
This unit playing RB CD's is much better than my Sony with SACD's. It's not the most detaled, doesn't have the most extented highs, etc. but, to me it just sounds realistic. And the PRAT Naim equipment is noted for is no joke. You forget about evaluating your CDP and strat listening to the music again.
I've seen units less than a year old go for a grand here on AG and your going to be hard pressed to find better for the money. Get one of these and I bet the difference wont be small. :-)
What cables are you using? I know some are going to say different, but IMO crappy cables can mask equipment differences.
BTW, you can use the two channel stereo mode witout the by-pass feature. With this mode the signal is routed through the digital circuits so you have the ability to use your cross overs and sub. When you do an A/B between this mode and by-pass you will easily hear the difference in the mid-range and lower treble.