The DAC in the Arcam receiver would sound great on CD playback. You'd just use the DVD as transport. Same as for movies.

I like a center channel, it helps keep the dialogue more audible. You don't lose panning from left to right. The audio engineers try to make the sound match what you are seeing on screen. With at least 5.1 there is a potential for some real sound effects fun, so I prefer having rears. Action and horror movies utilize the rears pretty good. Things flying through the room and such.

What gear are you using now? Some HT receivers have a "bypass" feature that allow stereo sources to bypass the internal processing. This can sometimes improve music playback. If you've never used a SPL meter to set your sub and speakers, or at least used one of the auto set up features, you might be surprised at the improvement with levels and distances properly set. I'd try playing with your system some before throwing money at it.

If the system just isn't going to sound good you could try upgrading to a new receiver, or speakers, or both. You could try adding a CD player with better playback sound than the receiver. You could keep what you have for HT and put together a 2nd stereo system for music.

NAD makes some inexpensive integrated amps that get you pretty good sound for the money. You can take a look at www.emotiva.com . Also, on the cheap there is a fair amount of vintage gear available on Craigslist, thrift stores and the like. An old Harmon Kardon or Sansui receiver or integrated might do the trick.

A lot will depend on your budget, how much room you have and if you are ready to give up on HT altogether. Personally, I'd recommend staying with the HT with Blu-ray around with better picture and sound than ever and great sounding concert videos available.