I vote you get rid of the Rotel stuff and get a nice integrated amp that matches well with your speakers. The Wadia/DAC magic combo is fine in my opinion.
What's in your Wadia iTransport system?
I am having a difficult time working out the "hard edge" in my current system: iPod 160gb Classic (lossless) > Wadia iTranport > Cambridge DacMagic > Rotel RSP-976 > Rotel RP-985 MKII > Paradigm Studio 20 v3. The Rotel components and speakers were purchased used on AudioGon, the remaining purchased new. Total investment ~ $2,500. I would appreciate hearing about your iTransport system and investment. Also any suggestions on next-step cost effective improvements on my system. Thanks very much.