Well, Rome wasn't built in a day. Your audio purchases won't end with this $500. So plan ahead and purchase accordingly. Your source is pretty bad, the receiver will be a limiting factor with the new source. Nobody knows what you are looking to improve like you do. So figure out if an amp or a new source will make the most difference in your situation. All we can do is make suggestions.

Like I said before, you can do a new integrated amp/cdp combo for as little as $700. If you can't swing that now, buy one component now and save up for the other one. Or, look at the used market (audiogon.com) and look for a great deal(s) and buy everything in one shot. But don't just throw money at the problem.