Any Home Theater Experts here?

I'm with the majority,it seems. Mega buck 2ch and a rec. for HT. I also get to use the good stuff for the 'fronts' in HT mode. I guess it just depends what you want to spend and where your priorities lie,for each format.

Let me clarify. As I mentioned above, I'm not planning of using it for music, just for movies. I just want to know what I'll hear from a standalone home theater processor that I wouldn't hear when using my Sony receiver as a processor?
I'm not interested in 7.1 just 5.1. Does the newer home theater processor uses the latest chip and decodes dolby digital or DTS much better than my 5 year old receiver?

I just sold my Outlaw to go back to an AV Receiver. The receiver I have now is a Underwood Modified Denon 3806 (around $2,000 new). The Denon is driving my rears and my center channels. My center is a Dynaudio Contour T2.1 (not very efficient) with the Denon handling it easily. The center is crossed over at 100HZ so the amp doesn't have to work very hard. The rears are small Cambridge surrounds and again, no problem for the Denon. I also drive two outdoor speakers off the extra amps on the receiver (7 total channels) and control them separately in zone two. The front two speakers are driven by a Macintosh amp. I am currently shopping for a 2 channel pre so for now the Denon is handling my 2 channel also. To really notice a significant increase in audio/feature performance I think you need to at least get to the Anthem 20 or Meredian 561 level ($1,500 used). THEN add the cost of 5 interconnects, 3 power chords, extra power conditioner capacity, dedicated power lines, amplifiers and, well, you see where I'm going... it just stopped making sense to me. All this extra "stuff" also had it's adverse effects on the sonics of both 2 channel and surround sound.

"I would not do the ACT 3 as technology has moved on... I would do a Denon 3806 with room correction and keep you current Preamp." (cytocycle)

Actually, technology hasn't moved that much! Infact, for all the applications you'll use, nothing we've got right now is really supperior for your movie applications than that old outdated ACT 3! Infact, I've got a piece that uses 24/96 and 24/192 Dac's in it, and it's not really better for DD/DTS movies than my old ACT 3, just a tad quieter in the signal to noise department. Otherwise, my old Act 3 was just as potent!
Look at it this way, everyone's either playing CD's, which are 16/44, DD/DTS movies, which ARE NO HIGHER IN REZ, and analog or Hi rez audio sources (which is covered by your 2 channel setup!). Nothing right now in a processor is going to beat up on the old Act 3, and similar!...just more bells and whistles mostly.
HOWEVER, I will definitely conceed that some of the newer processing for Parametric EQ, like in the Denon, B&K, Sherwood, etc, are VERY VERY practical and effective in most setup's, yes!!! If you can't get your speakers/seats to where you're getting reasonably flat response from your system, then yes, you will definitely benefit from this sort of acoustical help! Still, if you can set up speaker properly, then you can get around this. However, the piece in question still has to sound good on it's own. Receivers are mostly a sonic compromise, with some exceptions (i.e, the Arcam).
If it were my money, and I had a good setup, and didn't want to spend a bunch, I'd not hesitate to stick in another ACT 3 in my system. I've owned 3 or 4 over the years, and did what you're doing, which was loop em into an auxilary, tape loop, or "bypass" input on a 2 channel higher end preamp for music dubties. Works great!
Good luck

Are you saying you put your receiver into bypass mode for music? (you wrote it as if you put the SF into bypass, which I doubt.) Why not simply try this experiment...

Try directly wiring your high end stuff into your speakers for music - see if there's a difference from bypass.

If so, you have a clue about your receiver.

Also consider room treatments. The room means so much and is so often ignored 'for what it is' but there are things you can do to improve sonics (REAL TRAPS, RPG, etc.) Odds are, the room can be tweaked for better sound in both applications! At least consider this.

Research the receivers with automatic room EQ and delay - some are said to be better than others, esp. with music, if you go that route. Your speakers should be revealing enough you'd hear a setup which wouldn't be quite 'there.' The expensive Denon has what's supposed to be a good setup program.

Beware lipsync receiver problems. Not all gear does a good job with that.

Frankly, you might just want to cool it for a while and let tech get just a little farther along - HDMI receiver switching, etc. is coming to more boxes everyday.

Read about video processing just to get an idea what can be done in THAT arena. http://www.greatHomeTheater.com/videoprocessing.html

Good luck!

Bob Wood