What, if any, component to upgrade? Advice?

i would agree with the dac suggestions. i have spent the last few years adding better cables, better room treatments, better tweaks. i got some good results. but two weeks ago i replaced my music fidelity v-dac with a emotiva xda-1 because it had 6 inputs for flexibility and it changed my system from ok sounding to pretty remarkeable. i'll spare the flowery language but i now have a image that is 3 dimensional.

My focus is on the source side so anything to improve that is should be more important than downstream (unless you have a weak link, like the absence of a DAC in your case). Clean sound comes from clean power/signal and what you hear should not be cluttered by too many or strong indirect reflections. In your case I would certainly invest in a good power conditioner as that would benefit all items in your system and subsequently, power cables and interconnect upgrades. Cheap tweaks in isolation (a must for source devices) and vibration control (amps and speakers) should definitely be considered, there are numerous entries here on the Gon about that. Room treatment can be more difficult as to find a compromise between room aesthetics, according to your partner's opinion, and room acoustics, unless you have a dedicated listening room. My practical advice for the first grand (you can never stop, that's the fun part!) would be:
1.) buy an used power conditioner for $300 (heck even a cheapo Belkin PF30 or PF60 is better than nothing) and replace the wall sockets with hospital grade ones (e.g. Hubble or PS Audio)
2.) an used DAC for $600 (many contenders)
3.) isolation tweaks (Herbie's Tenderfoot, Vibrapods which are very affordable).

Simao, we have not heard back from you so maybe you could sum up what you have done or going to do and we could go into the second iteration of advice/comments.

I totally agree with Lloydelee21. Your speakers have what I would consider minimum power, and adding a more powerful amp would be beneficial in many ways. To change speakers, then you need one with a much higher sensitivity, maybe 96dB or higher.

Thanks for all the advice all. Some updates:

1. I have vibration controls on both speaker and components in the form of mollytoes and pods.

2. It looks as if a DAC is the first thing I'll invest in. Ironically, I had a Creek OBH-14 DAC for years. When I got the Sophia, it seemed as if I didn't need it, so I sold it off. Live and learn.

3. I'm loathe to give up the Sophia. I bought it off audiogon; shipped it off to the Sophia headquarters in Virgina to have the caps and IEC upgraded and new tubes. I love how warm and bloomy it sounds.

4. No one has mentioned the speakers. Should I get better monitors?

Thank you again

Dedicated line(s)-power conditoning-isolation/rack and room treatments are essential for your system to reach its potential. Since your budget is only $1K have a dedicated line installed($200)-Hospital grade receptacle($50) and a RSA-Elgar($500+used). With around $250 left get your feet wet and look for some used minor room treatments. I do believe a cpd/transport needs an isolation platform not just footers. I'm getting great results with a Gregitek Stab 1.