Tarquinh:
pete 321, The onkyo if far more expensive than the Denon. Since the OP is already using a CA cd player, arguably the sound will not be massively different anyway. Finally, "upgrading" the Dacmagic will void the warranty, cost money and destroy the original designer's intent. True, it may sound different, but better?
I've had some experience with Denon AV amps, and to my mind the biggest improvement to the sound came when I changed the amp, which was an earlier model of the one the OP has. It simply is not a brilliant amp on the stereo side of things.
I agree, the amp would be the better upgrade, but he won't get a better AV amp for around £300 (although I'm selling my Onkyo soon!).
You can buy the DacMagic on a sale or return basis from Richer Sounds, so the OP has nothing to lose in giving one a go. I suspect that a cheaper Denon amp such as the one he has will have an overly safe sound, a DacMagic will open that sound up a bit more.