If the switch is set on bypass, then the Rotel SHOULD be bypassed altogether. I had a similar problem. I have a Parasound R-EQ 150, and it has a "bypass" switch. It's an equalizer, and I bought it because my wife likes exaggerated bass. Well, even in the bypass position it constricted the soundstage. Then a dealer friend of mine told me about a person who could rewire the unit so that it would emulate a hard-wired connection (i.e. virtually no soundstage degradation). I had it done (Cardas posts, and other stuff) for around 400 bucks (considerably more than the original retail price of the now discontinued unit, I'm pretty sure), and NOW the unit really seems to have NO detrimental effect on the sound--when it's in the bypass position.
So.....Maybe it would be possible to have the bypass circuitry on the Rotel upgraded so that it didn't degrade the sound at all, i.e., it emulated a hard-wire connection. The only thing is that I don't know if that's possible when the Rotel's volume potentiometer has to be in the loop. Still, it might be worth a phone call to some talented modder. I don't know the name of the modder who did mine, but could probably find out if you wanted me to.
Keep the faith. The musical reward will be that much sweeter when the annoyance has been conquered.
-Bill
