I started getting the XM feed with my DirecTV a couple of months ago, replacing the Music Choice feed. I have it run into my system through the preamp and I would agree that it sounds bad. It is much worse than the Music Choice. I have even tried running the signal through my D/AC and it actually made it sound worse.
I would guess that nothing is wrong with your receiver or gear and much is wrong with the XM signal.
I would guess that nothing is wrong with your receiver or gear and much is wrong with the XM signal.