What is the Current Guidance on Stereo and AV Configurations

I've ran an Atmos A/V system for years prior to separating my 2ch setup from home theater recently.  My A/V system is still very capable for music, but my needs have changed. 

To answer your questions:

1. Yes, you can put together a world-class system that does it all.  Your restrictions are really only convenience, money, heat dissipation and space.
2. Personally, I think adding rear channels or height channels for Atmos makes a bigger difference than 2ch versus 3ch.  Some speakers are better for this than others.  With full-range speakers, you can easily get away with 2ch.

Not sure if any if this is relevant for you, but a few observations:

• There are a few A/V Receivers that come with XLR inputs and outputs.  The Yamaha RX-A8A is very solid and a great way to add a dedicated amp.  You can also add a dedicated DAC to its XLR inputs, if desired.
• eARC implementations vary across manufacturers and bigger manufacturers will have better compatibility.
• If you're ok with a 2ch setup with HDMI inputs, there are a few options, but not many.  NAD M66 comes to mind.  There are likely much more that will come out as the Chinese DAC manufacturers have even started adding eARC inputs (which is another configuration option).
• If you're set on keeping your speakers, you'll likely achieve the biggest sound quality gain from adding in a good dedicated amplifier than spending more on a receiver/processor.

@kaizen28 

Pynkfloydd, yup, I'm using ARC into the NAIM today and that's my preferred choice moving forward. It's why the Prisma caught my eye. As for speakers, yes, we're open to upgrading them in time. Blade 2s are very, very pretty. 😏

I've had great results with a pair of Scansonic MB3.5s connected to a PS Audio BHK 250 into a Yamaha RX-A8.  The Scansonics have a nice low end thump and the ribbon tweeters do really well with a couch (instead of listening chair). 

If I were building a hybrid system again, I'd suggest speakers that have a solid low end and do well with wide listening positions.  Lots of surprising options out there and I've even had good results with a pair of small Dali towers when I lived in a small NYC studio where I couldn't build a full home theater system nor use a near-field setup.  Something to consider is that the bigger AV brands also support wireless speakers, so you can add rear channels without having to run wires. 

I've tried a lot of top end receivers from Marantz, Sony, Yamaha, etc. and would still recommend an external amp to get the most out of your speakers.  I would say that adding in the BHK 250 was a much more noticeable difference than receiver upgrades.  The top Yamaha and Marantz models weren't bad on their own, but I was a bit floored when I connected the amp and realized I had missed a lot of potential from the speakers.