Oh wow they will take the Outlaw back? That is great news! Send it back. For what you spent we can do a lot better. Equally great, the Klipsch Heresy are a very good and maybe even more important very efficient and easy to drive speaker!
So first let's make sure we're all on the same page. You inherited from your dad a tape deck, turntable, and an Onkyo receiver with a phono stage. Also you have Klipsch Heresy II speakers, presumably inherited as well. Want to keep everything straight partly to understand your options and also there's not only the usefulness but sentimental value involved. So let me know.
In any case the Klipsch really are good, and I know that first hand too. Easy to drive and very efficient you will not need a lot of watts which is great it leaves you free to focus on quality. A lot of guys fall into the trap of hard to drive or inefficient speakers and you have no idea how much easier it will be for you getting really good sound just from that one lucky break!
So now here's the thing- its not WHAT you buy, its HOW you buy it.
What that means is you can forget about any and all advice telling you to go buy any particular component. Its not what you buy. Its how you buy. And the only way to buy is by what you yourself actually hear when you go and listen to it.
What I see then is you've got a $1.6k budget- $650 from returning the Outlaw plus the $1k you can afford. You have your source components- tape player and turntable- you have your amp (Onkyo receiver) and speakers. And the Onkyo has a phono stage, which means you can use it for nothing but a phono stage if need be. And you have the LOC, which means you can also use the Onkyo as a pre-amp if need be.
Sorry if I'm being tedious, its just that I find it really helps to think of these things in terms of function. Especially when it comes to working out options. If for example you find a really good integrated and you like everything except it has no phono stage, well you can use the Onkyo as your phono stage until you are ready to get a better one. Which might actually happen.
Right now it seems to me you are sitting pretty. You got a fairly decent stereo right now, fully functional, and with a pretty darn good set of speakers. I've done whole systems that turned out great for much less than your budget, and that was starting from zero.
In your case, most likely, your best use of your $1600 will be to find a nice integrated amp, phono stage, speaker cables, a power cord for the integrated, and one or more interconnects. When you budget it out that works out to something like a $500 integrated, $300 phono stage, $400 speaker cable, $200 power cord and $200 interconnect.
I'm not saying that's what you do, this is all just planting the seed in your mind saying this is how you go about it. How matters more than what, remember. You'd probably be smart to budget a little less for each of these keeping in mind that maybe along the way you start thinking the turntable would be a lot better with a better cartridge (very likely) or sitting on a nice base (extremely likely) or with a ZeroStat and some cleaner (beyond likely- for certain).
Probably reading this right now this makes very little sense. Eventually though as you go and listen and compare you will come to realize that yes indeed a really good amp and speakers are wasted if connected with crappy speaker wire. The same goes for everything else. Because it all goes together. And little things like interconnects that don't seem like they could matter very much actually matter quite a lot. Your speakers are good enough you will be able to hear the difference when you try out some really good speaker cables. Or when you hook up a better amp.
Or when you move the speakers. Which actually comes first. Most important thing of all, speaker placement, and we haven't even mentioned it yet.
That sound you've been chasing? You'll get there. And then some.
