Upgrade strategy -- midfi to higher-fi

I would upgrade speakers first but that is just my opinion...

What are your goals? Since you mention pre/pro I assume it's for HT also?
Room size, listening, % Movies and % music, etc.
Some details might help.

BE-718 Diamond speakers with McIntosh amp would be my choice.

Don't forget to plan for room treatments.

Get the best sounding speakers you can afford. The sound can never be better then what the speakers can produce

Combine your current Rotel for movies with a true quality pre for music side is an option.

@Sebrof: yes, music and home theater.

Room is large as it has 12' ceilings and is an irregularly shaped "great room", not a dedicated home theater room (nor is there ever going to be one in this house -- too small). It's also a lively room with tile floors throughout. We have heavy drapes over the wall of sliding glass doors/windows and an area rug in front of the flat screen tv/home theater componetry. Leather furniture (two couches, one recliner).

I neglected to mention the two velodyne SPL-10 subs that will handle the low frequencies.

Movies/tv % >> music % (CDs in the Oppo 95 and a Wadia ipod transport). Musical tastes run from Bocelli to Brickman to Steely Dan to Santana to Rush to Disturbed -- in other words, all over the board.

Smooth and clean sound is my goal. Not a fan of "bright" sound as the lively room makes everything bright and lively already.

I am looking at room treatments. I plan on putting some treatment in the large media nook. Other treatments may be harder to do due to the need for spousal approval...

I'm limited in speaker size as everything is in a slightly elevated media "nook", albeit a large media nook. I have the fronts of the speakers in front of the nook edges, but not by much... My focus on stand based or bookshelf type speakers like the be-718's or the B&W 805's is due to the space limitations that I have. Another speaker that has been brought to my attention is the Carbon 7's that are advertised on Audiogon. I might have to audition those.

@Chadnliz: No way I can do two systems due to space considerations (and spousal disapproval).

Upgrading the speakers first is an option, as long as the Rotel can drive them (it is reasonably robust, I guess).

Thanks all for the feedback --- keep it coming.

All you need is one more shelf for a 2channel pre amp to combine already owned gear for movies with quality amp and pre for 2 channel listening. Oh and you need 2 more RCA cables ;)