I Want Better Sound...

[Woochifer]

Before you even bother with amplification upgrades, you need to look at the speakers and the room acoustics as markw said. Speakers and rooms have far more variation and real world effect on the sound quality than any of the front end components will.

If you have a small and echoey room, then the room will produce standing waves (which create huge fluctuations in the low frequencies, making it sound overly boomy with some sounds and anemic with others), and time domain distortions (which make the sound harsh, mess with the imaging, and make the overall sound less coherent).

At a minimum, you should try different speaker positions (with two channel, you're best off pulling the speakers away from the front wall by at least 3 feet, and using sound absorption at the reflection points along the side walls). Room treatments that deaden the echoes can dramatically improve the imaging coherency and smooth out the sound overall.

If you use a subwoofer with your system, you should consider installing bass traps and/or a parametric EQ. A parametric equalizer can really improve the bass by targeting and attenuating boomy frequencies, and allowing you to more accurately calibrate the levels. The end result is extended, and fuller sounding bass.

Whether or not a source sounds better using an analog or digital connection depends on the quality of the DACs inside of your receiver versus those inside the CD player. Keep in mind though that a lot of home theater receivers convert all analog signals to digital anyway for DSP processing (including the bass management, which is almost always done in the digital domain with home theater receivers), so the quality of the DACs or the analog circuitry inside the CD player won't matter much. Most receivers do allow for direct analog connections (with no digital conversions) using the multichannel analog inputs, however keeping the signal in the analog domain means that the signal also bypasses the subwoofer.

Even though there can be audible differences between amplifiers, they are often more subtle than the improvement that a simple speaker repositioning can make. Speaker upgrades and room treatments typically make far more obvious and noticeable improvements.