Which 2 channel system to go with?

Neither. You should be putting most of your budget into your speakers. Get a new Sherwood 4105 receiver for starters. That leaves you $400-500 for speakers.

Have you looked into the B&W Zeppelin Air, it has airport built in:

http://www.wired.com/reviews/2011/03/zeppelin-air/

It could fit your needs quite well

I sort of agree with mcnarus - spend most on your speakers.

I'd look for a decent used integrated (craigslist, kijiji, audiogon, here, canuckaudiomart if you're in Canada) instead of separates with a total budget of $700; especially since you need Airport Express - that means you have a $600 budget for receiver and speakers.

If you find a decent used integrated for $200 you have $400 left for speakers.

Not sure, I have the B&W Panorama Soundbar and it sounds amazing for music.

The zeppelin air has the advantage of being portable, occupies much less space than all those components, less wire clutter, and it looks pretty cool.

All the reviews I have read about it give it stellar marks. just google:

"bowers Zeppelin air review"

The Zep may be the world's greatest iPod dock. (Or not.) But that's what it's being compared to—other iPod docks. If you want something small and portable, great. If you want something the fits under your TV, a soundbar is what you want. But if you want to fill a room with a plausible approximation of a live music event, I don't think either really holds a candle to a pair of good speakers.

I'd go with system 1. The very poor emotiva amp in system 2 eating much of the budget makes it an easy decision. Not a fan of those Klipsch's either.

You might think about a slightly different solution. It would work nicely....

Airport Exrpess $100
Behringer B1030A Powered Studio Monitors $143 each (Parts Express, free ship)
Emotiva XDA-1 DAC $199 (free ship) -- can be used as a pre-amp
*3.5mm Stereo to RCA (or Optical) adapter <$1.00 (monoprice or other retailer)
*Coax or Optical cable <$5 (monoprice or blue jeans cable or other retailer)

Or, if you're not planning on running anything besides the Airport Express, then you could forego the XDA-1 and move up to the bigger Behringer B1031A at about $200 each (or other monitors of your choice at $400-$600) and get a 3.5mm Stereo to dual RCA adapter and plug directly into the monitors.

Either way, it's pretty darn good sound for $700 or less.

*Not sure if there's a newer version of the AE with additional connection options, but I believe the one I saw only had a 3.5mm jack and the USB was only for use with a printer.

All AE have can output an optical signal using a mini-toslink cable:

http://www.monoprice.com/products/pr...t=1#largeimage

That's even better -- no adapters necessary. Shows you how observant I am.

What is the DAC in the AE like?

In my system I will be using a Logitech Squeezebox Duet and I plan to use a Beresford Caiman Gatorized.

But with a $700 total budget I still think getting a used integrated and spending the balance on spakers (and an AE) is the way to go. Later, I'd probably insert a DAC before doing an upgrade to separates.

Excellent, except for a rather high jitter rate. But that's still an order of magnitude below anything that's ever been measured as audible.