Which way should I go?

I'm not surprised by the sound you have described given your choice for DAC and amp. The Theta stuff (particularily their older stuff) had a harsh and bright top end and lacked warmth. The Thershold equipment has always sounded very "solid state" to me. That solid state charecter is an electronic sound to the music, very artificial sounding. Lot's of sharp detail, really crystal clear, but lacking warmth and musicality. I haven't heard the 802's but heard the 801's several times. I've heard them sound real good and real bad. Being driven buy a Levinson No. 23/26 combo they sounded very much as you described. Driven by a pair of Kebshall 35/70 tube monoblocks and an ARC preamp, they were fantastic. Your preamp is real good and would work well with a lot of different amps. If you want to keep your speakers, I would start by looking for a different amp. If you don't mind tubes, there are several good tube amps available on the used market for not too much money. I just saw an ARC Classic 60 with balanced in's on RAM for something like $1100. If you don't play music too loud, this will probably be enough power and should sound great. Most of the amps from ARC, CJ, Sonic frontiers, etc. should work well with the 802's. If you want to stay with a solid state amp, I think the Bryston 4B ST sounds really good for the money. I'm not so sure it can completely tame your system though. The Classe amps tend to have a warm, rich midrange, very tube like but I found the top end to sound dark (rolled off). I also felt they lacked in over all resolution though they were musical. It's not really my kind of sound but might make your system more listenable for not too much cash. If yoo want to keep your electronic, look for a speaker that tends to be warm and has good bass. I'm not too sure what will work good with that combo. Good luck.

Either ditch the Theta or have it upgraded to the III or the V. I bought the Theta Pro Gen II in 1992. Even though it was one of the best DACs around at the time, DACs have become much warmer the years including the Theta. When I had the Theta upgraded from the II to the III, the difference was truly "night and day". The III was much more warm and far less "in your face" than the II. In fact I still use a Theta Pro Gen II in my home theatre which can definitely be too bright at times - but this is less of an issue for movies and the bass is still quite good. If the cost of to upgrade the Theta is unacceptable or if Theta takes three years or more to get your upgrade done (their customer service is pathetic) - why not just dump the Theta and switch to a Sonic SFD2 Mark II DAC?. I have also owned this DAC and found it to be much warmer and smoother than the Theta and this should help your system alot. As you may know prices are real soft on the Sonic equipment right now. You can buy this $5300 DAC for less than $1500. Less the $600 or so you might get for the Theta the change in DACs should cost you less than a grand.

If you have a large undamped room those speakers must go. They should be easy to sell there is a lot of so called audiophiles that like B&W. This will be the most economical way to start. Hopefully you have a local dealer that can come to your house and check it out