LK, as long as a receiver has adequate channel separation(i.e. all of them), there's no improvement in "image" or "soundstage" to be gained from a more expensive one. We read about these mysterious benefits on some audio boards, but there's no factual basis for this which holds up under blind listening tests.
In audio even where there are in fact audible differences, i.e. speakers, it apparently isn't enough to say that one is significantly better or is somewhat preferred, instead the difference has to be "huge", "night and day", "blows away" etc. So yes, possibly your expectations were too high, even for excellent speakers such as the M3s.
From what you describe, it may be that a small sub might be the wisest use of that money(besides more CDs and DVDs). One possible choice within your budget is the Outlaw LFM-2.
