Again, count me in the recent upgrade boat. It all started when I came across a deal on some Thiel 3.6's, then another deal on some Adcom amps (I know that they get knocked a lot, but I happen to like the sound of my GFA-555II's). So, I went from a two channel system with a Caver C-11 preamp, one GFA-555II, and Acoustic Research TSW-110's (with an older, passive subwoofer), to a 5-channel setup with the Thiel CS3.6's, Thiel SCS3 center, AR SAT 660's for surrounds, and the Rotel RSP-1066 for the brains. I really think that the RSP-1066 is a good pre/pro for the money. When I went looking for a multi-channel pre, Rotel wasn't even on my list, but the guys at Progressive Audio made me listen to it. So, I A/B'd it against the Krell Showcase, and lo and behold, it didn't sound too bad (especially for 1/3 of the price). Yes, I'd love to have a Krell pre/pro (and amps!) at some point, but until then, the RSP-1066 will suit me just fine. I am thinking about picking up two more SCS3's to make it an all Thiel speaker setup. And I probably need a subwoofer, since my room is very, very bass unfriendly (the CS3.6's can hold their own in a good room, but mine is not one of them).
I think that Unclejeff's advice is the best. Being a fan of separates (especially processors that can be software upgraded, like the Rotel), I'd say try that jump first. I would normally recommend upgrading speakers first, but you have a lot invested in matching speakers, and with the proper amplification, those Paradigms are pretty darn good (especially for the money). A friend of mine has a Paradigm HT speaker setup, and the sound of his speakers noticeably improved when he substituted a separate power amp (Adcom GFA-5500) for the power amp section of his receiver (high end Yamaha, though not sure of the model). Of course, you may not notice as big of a gain stepping up from your Denon, which is an impressive receiver. However, once you have the pre/pro/amp squared away, I think that you can find speakers that are more brilliant, accurate, and musical than your Paradigms (say, Thiel, for instance!).