Unless I am mistaken you already have a home theater processor in the Sony. I would not change the sony, your set-up seem fine.
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pressuming you're staying in 5.1 channels, and not 6.1/7.1 (lest you add amp and speakers for rear/sides), I'd look at quality over quantity indeed. I'd even sacrifice the newer DPLII/IIx in favor of doing 2.1 channel material for stereo movies and such if needbe.
What you can expect from better pre's is better dynamics, lower noise floor, better channel separation, low level detail, refinement.
I'd start at a minimum of Acurus Act 3 with ABM for a budget. I've a factory upgraded 7.1 Acurus unit with 24/192 DAC's myself that's superb, if rare. Another choice is a used Thule or Cal Audio 2500. Krell HTS is superb and refined for $1200-1500 range used for 5.1, if a tad less dynamic than the suprising little Act 3. Otherwise, considering the Anthem AVM20 or better is a good chioce.
If you have a difficult room setup, where you have problems with getting flat response, I'd consider some of the models with a built in parametric EQ, if you care. It does make a huge difference in a system with wall mounted speakers, and diffucult speaker/seating choices.
Do you need 6.1, DPLIIx, etc? There's lots of other choices out there. Many that won't do much better than what you have now however. The Outlaw 990 probabaly won't sound much stronger than the Sony's preamp section however.
I would say dont bother, if you are not serious with movies as you are with music then put your money elsewhere, I truely think it is VERY easy to pull off a good movie experience on the cheap, music is a whole other story though. I replaced an Onkyo reciever with Rotel seperates and some features are nice but door slams and car crashes are pretty easy for a Sony to do just fine. I also use a Sonic Frontiers for 2 channel.
Do you really feel like you are missing anything during movies????? If you hesitate to answer at all then I would leave it alone.
Ofcourse others opinions will vary but I know more then a few guys here with really nice rigs and running recievers for home theater, and these guys could spend the money if they wanted, but movies have visuals, effects, story and charcters to wrap you up in the experience, I just think a Sony can do a well enough job if you are not critical of a movie experience.
Most receivers lack the dynamics, channel separation,signal to noise, and overall low level detail retreival that a good separates piece offeres. That said, for $450 range used, something like the modest Acurus Act 3 offers significantly more potent movie sound than that of the preamp section from a Sony receiver. I've not only owned the 777ES and 9es pre's from Sony, but sold the 777 receiver as well. I know of what I speak. My two cents...
When I only had one rig I replaced my Sonic Frontiers with an EAD Signature with no loss in sound quality for 2 channel plus in balanced mode it used 4 DAC's which is amazing for 2 channel audio if you just have a transport. I still have the EAD signature in my video system and had to spend 4x the price beat it. Make sure the EAD signature has the rowland style faceplate or at an angle. The original 5.1 versions versus the 8000 or 8800 sounds better for 2 channel but lacks Dolby II.
I would not do the ACT 3 as technology has moved on... I would do a Denon 3806 with room correction and keep you current Preamp. The 3806 has HDMI video switching with upconverting so one less thing to cable and deal with. Plus you wouldn't have to buy another amp. There is a audio mic for setup too...
I just sold my Outlaw to go back to an AV Receiver. The receiver I have now is a Underwood Modified Denon 3806 (around $2,000 new). The Denon is driving my rears and my center channels. My center is a Dynaudio Contour T2.1 (not very efficient) with the Denon handling it easily. The center is crossed over at 100HZ so the amp doesn't have to work very hard. The rears are small Cambridge surrounds and again, no problem for the Denon. I also drive two outdoor speakers off the extra amps on the receiver (7 total channels) and control them separately in zone two. The front two speakers are driven by a Macintosh amp. I am currently shopping for a 2 channel pre so for now the Denon is handling my 2 channel also. To really notice a significant increase in audio/feature performance I think you need to at least get to the Anthem 20 or Meredian 561 level ($1,500 used). THEN add the cost of 5 interconnects, 3 power chords, extra power conditioner capacity, dedicated power lines, amplifiers and, well, you see where I'm going... it just stopped making sense to me. All this extra "stuff" also had it's adverse effects on the sonics of both 2 channel and surround sound.
"I would not do the ACT 3 as technology has moved on... I would do a Denon 3806 with room correction and keep you current Preamp." (cytocycle)
Actually, technology hasn't moved that much! Infact, for all the applications you'll use, nothing we've got right now is really supperior for your movie applications than that old outdated ACT 3! Infact, I've got a piece that uses 24/96 and 24/192 Dac's in it, and it's not really better for DD/DTS movies than my old ACT 3, just a tad quieter in the signal to noise department. Otherwise, my old Act 3 was just as potent!
Look at it this way, everyone's either playing CD's, which are 16/44, DD/DTS movies, which ARE NO HIGHER IN REZ, and analog or Hi rez audio sources (which is covered by your 2 channel setup!). Nothing right now in a processor is going to beat up on the old Act 3, and similar!...just more bells and whistles mostly.
HOWEVER, I will definitely conceed that some of the newer processing for Parametric EQ, like in the Denon, B&K, Sherwood, etc, are VERY VERY practical and effective in most setup's, yes!!! If you can't get your speakers/seats to where you're getting reasonably flat response from your system, then yes, you will definitely benefit from this sort of acoustical help! Still, if you can set up speaker properly, then you can get around this. However, the piece in question still has to sound good on it's own. Receivers are mostly a sonic compromise, with some exceptions (i.e, the Arcam).
If it were my money, and I had a good setup, and didn't want to spend a bunch, I'd not hesitate to stick in another ACT 3 in my system. I've owned 3 or 4 over the years, and did what you're doing, which was loop em into an auxilary, tape loop, or "bypass" input on a 2 channel higher end preamp for music dubties. Works great!
Are you saying you put your receiver into bypass mode for music? (you wrote it as if you put the SF into bypass, which I doubt.) Why not simply try this experiment...
Try directly wiring your high end stuff into your speakers for music - see if there's a difference from bypass.
If so, you have a clue about your receiver.
Also consider room treatments. The room means so much and is so often ignored 'for what it is' but there are things you can do to improve sonics (REAL TRAPS, RPG, etc.) Odds are, the room can be tweaked for better sound in both applications! At least consider this.
Research the receivers with automatic room EQ and delay - some are said to be better than others, esp. with music, if you go that route. Your speakers should be revealing enough you'd hear a setup which wouldn't be quite 'there.' The expensive Denon has what's supposed to be a good setup program.
Beware lipsync receiver problems. Not all gear does a good job with that.
Frankly, you might just want to cool it for a while and let tech get just a little farther along - HDMI receiver switching, etc. is coming to more boxes everyday.
Read about video processing just to get an idea what can be done in THAT arena. http://www.greatHomeTheater.com/videoprocessing.html
Let me clarify. As I mentioned above, I'm not planning of using it for music, just for movies. I just want to know what I'll hear from a standalone home theater processor that I wouldn't hear when using my Sony receiver as a processor?
I'm not interested in 7.1 just 5.1. Does the newer home theater processor uses the latest chip and decodes dolby digital or DTS much better than my 5 year old receiver?