How to get 2 Channel and Home theater in one packa

I've tried many configurations to accomplish what you're seeking. The one I have now is by far the best and most cost effective.

I have a separate 2ch preamp, and a pre/pro. I'm using a Lexicon DC-1 which I find is quite nice for the money and more than satisfactory for my purposes and budget. There are many others including this one that will fit your budget IMO. For speakers, I have Von Schweikerts all around. VR4-genIII's for mains and 2 channel; LCR-15 center, VR-3's for the rear, and a Rel sub for LFE. I run the front L/R channel outs to one of my 2ch preamp inputs. In my case I don't have processor passthru on my pre, so I calibrate the pre/pro volume with my preamp volume set at 12 o'clock (see my thread that discussed this at length - I got some good input from our fellow Agon'ers.

With this setup my 2 channel and HT share the same main power amp and speakers. It is optimized for 2 channel. If you prefer to optimize for HT, you may just go with a better pre/pro with 2 channel bypass and leave out the 2 ch preamp. For HT, you only need the add'l Ctr and Rr speakers and amps. You could accomplish this also using a HT receiver as described above too.

For pre/pro choices I suggest you search the archives to see what options fit your needs/budget. Likewise for 2 ch pre and amps. If you're not opposed to used I think your budget will easily set you up nicely. Other decisions you'll have to make are whether to go with a multi-champ, or separates. There are good options either way.

Here's the thread discussing passthru setup.
[url]http://forum.audiogon.com/cgi-bin/fr.pl?bhome&1144327521&openmine&zzBdgregory&4&5#Bdgregory[/url]

The 5800 (or similar receiver) is a perfectly legitimate option; however, it depends on what you're after. If you want to optimize 2 channel listening, there's no way a receiver will do that. I don't have to imagine it, I tried it, for some time, in the same room. Indeed, a receiver probably won't optimize the home theater listening either. Another, probably better quality option is to have a great pre-pro as suggested by some of the posters above with great outboard power amps, and drive your 2 channel using the digital bypass available on most pre-pros. This can yield excellent 2 channel performance, but not as good as can be gotten with a great 2 channel preamp.

That's not to say that the 2 channel (and HT) performance can't be excellent. My experience (and preference) is that separates sound better $ for $.

I also don't think it's necessarily true that a 5800 is any less "clugey" than a separates approach. Indeed an argument can be made it's more of a cluge. At the end of the day the only thing you save is a handful of interconnects. I have a Sony ES receiver in my living room system, and the cabling is a mess.