#1 Do you have to wall mount them? Why not stands? Since you're not listening to multi-channel music the M1s would probably work fine. The rear surrounds don't necessarily have to timbre-match with the front three speakers. If it were me I'd try and make the CM1s work however.
#2 Do you have the ipod connected digitally (USB) to the Denon? There's no reason the DAC in the receiver should not produce excellent SQ.
#2 Do you have the ipod connected digitally (USB) to the Denon? There's no reason the DAC in the receiver should not produce excellent SQ.