Currently I've got a low end 6.1 setup.

Sony STRDE695 (whatever)
Energy C-100 fronts (decent)
Energy center (decent)
"sound dynamics" surrounds and rear centre (sh*tsauce)
"abstract acoustics" subwoofer (sh*tsauce)

it's essentially a glued together setup consisting of stuff I mostly bought when I wasn't making as much money.

Now I have a nice 46" 1080p panel and a PS3 so video is good. So I've considered going up to lossless audio as well. Spend about 3000 bucks on an RXV1800 and a bunch of Energy C-R100s and an Energy sub.

Then I put on my Elton John live at MSG dvd which transmits audio at a lowly 448kbps and I listen and think man this sounds awesome!! It's sonically my best disc for sure. I couldn't explain why but it just sounds so good.

It causes second thoughts about spending the 3 grand. If a 448kbps source can sound this good...could going to a total 10 speakers (7.1 + 2 front effect + sub) really generate a huge difference...like a worth-3000 dollars-difference?

I don't think this thing must cost 3k for your upgrade. Can you room really support 10 speakers? 5.1 6.1 or 7.1 really can get the job done with the right placement.

lossless audio may be with the upgrade depending on what you think. Have you heard any of the "DTS Core" tracks off of Blu-ray? Rent one and see for yourself. If you like what you hear get a new reciver.

You don't need to spend 1k on a reciver to get great sound (rxv-663?). Figure out what features you really need/want then find the AVRr.

Also a good sub == less boom and more bass.

Have Fun!

There is very little difference between 5, 7, and 10 speakers in a smaller room (audible yes, but not something that you will constantly notice like crappy video or poor main speakers). I'd suggest getting a good subwoofer... that will result in an immediate noticeable improvement. Room treatments would be another major improvement (they don't have to be big panels on the wall either). Your receiver is a bit underpowered and unfortunately doesn't have pre-outs (to drive an external amp). If you are listening at high volume levels then the extra power will come into play. If you can wait it out for another year or so you'll be able to get a lot more bang / buck (just like a computer or cell phone).