what is the best way to upgrade my HT system?

i have a 4 year old HT system comprising of a denon 5800 receiver, paradigm monitor( 11 as fronts) system and a REL strata sub. I have the denon 3910 dvd as my source. i listen to many types of music, except counrty, as well as watch movies on a regular basis. My room is 15 ft.X 15 ft. i would like to upgrade either the speakers or go to a separate amp/preamp system. i have a budget of up to $7K. fortunately, my wife loves this hobbie as much as i do.
Have you incorporated any acoustical treatments in the room?
You might consider using the Denon 5800 receiver as a pre/pro (I assume it has preamp outs) and buying active speakers all around to replace the Paradigms. Active speakers will give you a big bang for the buck.

Take a look here: http://www.mkprofessional.com/news_p1.htm

and here: http://www.mksoundstore.com/

At a later date you could replace the Denon receiver for a separate pre/pro.
HANDS DOWN, the absolute best way you could upgrade the performance of your system, or any system, is to have it properly setup, engineered, calibrated, tweaked, and acoustically treated (or at least consulted)!!
You can change equipment, move everything around in the room, upgrade components or speakers, etc, and yet NONE OF THIS will even come close to improving the core performance of your system/room as much as having someone with experience go through and engineer and calibrate every aspect of your room, setup, and equipment!!! And that's an understatment!
You can read all the info on the net you can find, from audio/video industry experts, even professional magazine reviewers, on how important the room, the setup, the engineering, acoustics, and tweaking and calibration of a room system are, to back up what I'm saying! All my years of experience, with even the best systems/equipment money can buy can verify the truth here.
Before you change anything, I'd trouble-shoot your system, and see where you're at first. Then, I'd consider changing one component at a time if youre a DIY'er. Otherwise, you'll be lost. You'll spend more money, and get more "gadgets/stuff", and you won't know what's doing (or not doing) what! That's the way it is. There's going to be no replacement for experience here.
Case in point, I once re-engineered and calibrated a guy's system, who was a 15 year veteran "lead" installer for some of the biggest, most well known audio/video retail custom companies in the business. He let me redue his own personal "nightmare" of a system that he had put together at his home, that was SOOOOO out of whack, and so poorly setup, engineered, and calibrated, with horible acoustics, that you'd have thought an amature had slapped it together! And this guy was representing and installing similar systems for the best in the business, and charging $80/hour for his services! (more $ for more installers)!
He was using 3 different brands of speakers in his system, 2 different brands of subwoofers (even different brands than his spekeakers), a projector that was out of calibration, with poor lighting, poor acoustics, speakers were mis-placed (yeilding poor response), his $8k subwoofers were all out of phase with each other(canceling out the bass), he had a dead short in one of his rear speakers, his settings were all off, his eq was all mis-done, phase was off, volume settings on all speakers were off, YOU NAME IT!!
Anyway, this is common place. Good luck
Where is it you feel the need to improve? Is your video display still current? Are your speakers voiced (same brand etc). Is that sub enough and well suited to your room? If not, you can get a third party equalizer (Velodyne sells theirs as a stand alone). Does the amp section in the Denon handle the load from your speaker right? If your speakers are hard to drive, it may be taxing the amp section.

Personally for me, I think the center channel and the sub are the two key items for h/t, along with the power to drive them. I don't want to strain to hear what's being said - I want it right out there crystal clear. I like to 'feel' the LFE too but a sub has to be musical as well. Mine's a DD-18 and it will have to be pry'd out of my cold hands before I'd let it go.

You do have a one-remote controller for everything, yes? If your still using 2 to 5 remotes, you might want to start there. My Areos 850 does everything and lists for 400 but can be bought much less even from authorized sources (recommended).

Just some thoughts.....