I think the AVR500 may be the culprit, so yes, adding a GOOD preamp would help, perhaps a hybrid integrated would be your ticked. Better quality preamp and amp (or integrated) would also result in better tonal balance with more bass and less hot treble.
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The sound im hearing from the setup so far good; kinda warm but yea im sure better amp would help (looking at building aleph-x). But the "hot" im referring to is not the highs, they are very clean and bass passages are decent; the speakers go up to 45hz and want a subwoofer for the extra lows.
I added a zapfilter my dac and replaced all power supplies with shunt regulators; I think the zap filter is outputting too high of a gain. My play on the amp is only couple of degrees before its way too loud. The voltage on the output of the dac is less than 1mv; so I think its the gain.
The problem with using a subwoofer's internal crossovers is that they are often an afterthought; an accomodation for consumers who lack a sub-out RCA jack or an AVR with built in crossovers. The quality can be poor, and remember, the entire audio band, not just the bass, will be run through this crossover.
I myself use a subwoofer for each of my left and right channels, and I would not want to be without them. However, I am planning on upgrading the outboard crossover my subs use for the reason I stated above.
Does the H-K AVR have a Treble level control? You could just nudge it a bit lower. That might be all you need, especially since you seem to like the sound with the exception of the too-hot treble.
And Plato has a good point. Consider some sound absorption at the first reflection points. Parts Express sells low-cost acoustic foam panels, if you don't mind the "studio look". Is your floor carpeted? If not, consider a rug for the space between you and the speakers. If you like the sound of headphones with your system, it may well be the room acoustics (or even the loudspeakers) that are the problem.
thank you for all your replies, the treble is good as is; I shouldnt have used "hot" to describe my problem.
I think im going to build a passive preamp using octocouplers like the lightspeed attenuator since my avr input impedance is 47k and zapfilter output is 100ohms. Should give me more room to control volume on the amp to find that low volume sweet spot.
As for the sub, still have to find better solution or pay for some Rel subwoofers.
1. Use inline passive attenuators, like Rothwell. He will custom build the amount of loss you want.
2. Use your AVR for bass management to add a sub. This is what AV gear is made for, so take advantage of it.