I have to wonder if your source components might not be the problem here. You play your movies from disks, I take it, but all of your music comes through the Squeezebox. Its a good piece, but not great. An external DAC could make a big difference. Just a thought.
Here's another. To test the hypothesis, play some CDs on your DVD player and see how they sound compared to the Squeezebox.
Here's another. To test the hypothesis, play some CDs on your DVD player and see how they sound compared to the Squeezebox.