Since I contributed earlier in this thread I thought I'd give an update on my "amp situation".
I ended up buying a Marantz NR1508 AVR with a nice discount, for about $420. I don't have a real need for separate stereo and TV systems, so previously I had attempted to adapt my stereo system to the TV by inserting a DAC between amp and TV. It worked pretty well but was complicated to use for family members. Also, as my stereo amp doesn't have a sub output, I was connecting the sub by high-level connexion.
Without running the Audyssey calibration, the Marantz sounded promising already. Especially, bass management and rendition seemed a lot better. But after running Audyssey, WOW - even though I screwed up a couple of things in the setup. The sound came alive, moved upfront and now puts on a wonderful show in the middle of the room. I keep thinking about the line that AVRs can never sound as good as a dedicated stereo system. I cannot make an honest judgment as I've never had a high-end stereo system. I do know a few people seem to disagree. But here I think clearly what made the biggest difference was the room correction function i.e. Audyssey. No stereo amp has such a feature in that price range. So room correction has become a very important feature for me suddenly. It's too early for me to proclaim "the search is over" as of yet but it may well turn out to be the case. So here's for another idea in <$500 amps.