1st Question-have CDP 's really improved in recent years?

I've been hanging onto my dbx DX3 CDP (since '86) because the dbx processing circuitry (impact restoration & "ambience control") is exceptional, but it bass response is weak compared to FM and DVDs. I have a recent Sony DVD player in the system, but it's bass is no better from CDs; and the overall sound is considerably poorer than the old dbx. This makes me wonder if a mid-fi CDP upgrade (~$500) will be a real improvement.
The answer is: YES. Digital has immensly improved since 1986. You can get a quality DAC (esp used) for around $500 that will make your jaw drop. It has been a while since I shopped in that price range, but I am positive you can get a piece of gear that will do wonders for your 2 channel, esp compared to a Sony DVD player.

Dwpc- Obviously, you'll be the only one who can decide if it's really worth upgrading. I believe that CDPs have improved considerably, but you'd probably need to go higher up to find truly "significant" improvements. Good used equipment in the $1K to $1.5K range can and will make you glad that you took the plunge. IMO, don't waste your money on intermediate steps. There will be differences, but not necessarily top-to-bottom improvements. Also, unless the rest of your system is up to the task, many of the subtle improvements may not be readily discernable. In the end, you'll have to let your own ears be the judge. Good luck.
Would the Classe CDP.5 be a decent upgrade used from a $500 player? Anybody have any experience or opinions on the Classe CDP.5 or anything similarly priced used or new?
There have been significant improvements in digital technology in just the past 5 years w/o even including DVD Audio or SACD. I agree with Jcbtubes post above. If you can afford $1500 to $2000, you'll find many choices that offer significant benefits over your older gear. Another option might be to try an outboard DAC from MSB or other high value / modestly priced brand.

For low-cost CD players (used) I like the Denon DCD-1650AR and the Cal Icon MKII. Or... any half-way decent player with coaxial digital out going to a good MSB DAC.

I have owned all of the above at one time or other but when I came into some significant cash burning a hole in my pocket I ended up buying a Cary CD player. The Cary CD-303 and 306 are both outstanding players.
The answer is a resounding yes! My Stan Warren modified 24 bit MSB DAC has sonically whipped all of the older designed 18 or 20 bit DACs that I have compared it to. I'm talking about the big names here like Krell and Theta. Have you ever wondered why so many older 20 bit machines are going so cheap now days on the used market? I think it has something to do with the performance advantages of these 24 bit D/A chipsets. For the first time in 15 years of owning digital (7 high end players, and 4 different D/A's), I feel that I am no longer missing the sonic purity that I had only previously enjoyed in analog rigs.