Re "setting for both Redbook and hi-rez stuff for 2-channel"
You'd set your player's (not receiver's) speaker config for 2-ch. If you have a sub and if the player's speaker config and bass management supports 2.1, then set it for that.
Re "is it...the DACs in the player handling the decoding...rather than the once in the amp"
Yes, but for SACD and DVD-A hi-res data, the player DACs almost always handle this, even for brand new integrated amps. Due to piracy concerns most high-res players only output hi-res in analog.
Re "if I upgrade to a nicer integrated amp...just have the analog pair go to the CD inputs on the integrated"
No, the player analog out will generally go to the multichannel or 5.1 analog inputs on the receiver, even if you only have stereo outputs (FR & FL cables). If you don't want high-res and if the SACD disc has a Redbook layer (aka hybrid disc), you can use a single digital cable between receiver and player. Likewise for DVD-As with a DD/DTS 5.1 track, the digital cable will work.
I think that's how it works. If anyone knows differently, please correct me.
