I do understand your dilemma in a very intimate way. A couple of years ago, I went from using an HDMI-less Marantz flagship AVR as a pre-pro w/a Marantz multi-channel amp combo to an older dedicated Rotel pre-pro with Anthem MCA 20 and MCA 5 amplifiers, not unlike what you have now. Prior to replacing the Marantz combo, I used a 3/1 HDMI switcher and routed video directly to the monitor. For High Res audio, I used the 7.1 analogue multi-channel outs from the blu-ray player to the Marantz AVR. It worked flawlessly. But, even though I was experiencing both higher video and audio resolution, I wanted better efficiency, less cables and if it was possible, improved audio quality.
The thing is, as much as I love new technology, when I acquired the Rotel RSP-1069, while it does provide me with HDMI (v1.1) switching, room correction or the pre-pro's ability to decode hi-res audio still wasn't a priority to me. I was very comfortable with using calibration discs, an SPL meter and my eyes and ears to hone in the settings. As far as experiencing hi-res audio, I allow the blu-ray player to decode the hi-res signal, convert to LPCM then send it to the Rotel via HDMI. Again, it works flawlessly. For SACD and DVD-A audio, I do employ the multi-channel inputs. I still use the HDMI switcher due to the fact that the 1069 only has 4 HDMI inputs and I have 6 HDMI capable devices. So there has been some streamlining when it comes to number of cables required.
The quest for improved sound quality is a difficult task if relying on the devices to make a difference. That being said, it's hard to say if I'm experiencing improved quality in sound. Right now, I'm satisfied with the end product, but I am now considering the newer technology such as 3D, networking, room correction, 4K and decoding the hi-res audio at the pre-pro stage instead of at the source device. So the question is:
-Do I replace my Rotel pre-pro with the most recent mid-range AVR with all the bells and whistles and hope the pre-amp section is worthy of producing the audio quality I'm accustomed to.
-Opt for the recent moderate priced pre-pro offerings from Emotiva, Sherborne, Outlaw, and the like. Pre-pro config satisfied, but what are the compromises, if any? Audio quality? Build quality? Prestige? (Pride of ownership) It does matter!
-Or take the same route to took when I purchased the Rotel.... save money by finding a 1-2 year old higher end pre-pro with that will give you quasi-current technology like, a minimum of v1.3 HDMI switching, mid -level room correction and some networking capability and excellent audio quality?
Gcap, all of this sound familiar, right? The bottom line comes down to $$$$$, the budget. What are you willing to invest at this moment. That will have the biggest impact on determining your path. $4-600, $700-999, $1000+ ..... there's a lot of choices in those price ranges.
You can find a pre-owned Emotiva UMC-1 pre-pro for $400 and that will give you the basics in current technology and hold you over until you're ready to make the big move.
Or find a discontinued Marantz AV7005 or maybe an Onkyo 5507/Integra 80.1 pre-pro for a grand or so. Higher quality than the Emotiva, but more money of course.
You can also opt for a new entry to mid level Denon, Onkyo, Pioneer, Yammie AVR as a pre-pro that will have the most recent feature sets, keeping it all digital and of course hope for decent audio quality. Some will argue about the quality of the analogue stages and DAC's at this level.
Then of course, there is the HDMI switcher option and staying with what you have until you save up for the big purchase, which is fine, but if that is really a consideration, then that means you are willing to forgo any new technology for the time being and be content with the AVM20's attributes. If that's the case, find an Emotiva UMC-1 and wait it out.
I myself, am considering a 1-2 year old higher end pre-pro. One that will give me features that I my 1069 lacks, such as 3D pass-thru, hi-res decoding at the pre-pro and USB connectivity. What can I say, I'm a creature of habit.