Welcome to the forum! I'll try to keep my respose short and to the point.
The first thing I would buy is new speakers. (You didn't say what kind you currently have.) They should immediately improve the sound of your system more than buying a new receiver will. Are you set on the M40ti?
Also, I think you're confusing optical inputs with digital inputs. There are two kinds of digital inputs: optical and coaxial. Neither of them is inherently better than the other, so you should use whatever is available. You DO need to use a digital audio connection if you want to hear Dolby Digital or DTS soundtracks.
Dolby Pro Logic can be encoded on L/R stereo tracks. That's why you don't need a digital connection to hear it.
