Glad you got it working!
When you get your whole system set up, you will probably want to connect your DVD/CD player to the LMC-1 via a digital connection. Then make sure the DVD/CD player is set to ouput DolbyDigital/PCM via the ditial output (or something like that). Then your LMC-1 will do the decoding into 2 channel, 5 channel, or whatever you want based on the sound mode you set on the LMC-1. Modes such as Direct, Stereo, Dolby Digital, Dolby Pro Logic II, Dolby Pro Logic Music, DTS Neo, Hall, Jazz, etc, etc, etc.
You're going to want to have all of your speakers set to 'Small', since you have that awesome HSU sub. I would do a crossover of 80hz for all of your speakers, but that's personal preference. Make sure the HSU's crossover is set to bypass. The LMC-1 will then be doing all of the crossovers and directing sound where it should go, which is probably what you want.
I bet that by using that 'Line-out' jack, you bypassed the LMC-1's processing. I still think your LMC-1 is stuck in a surround sound mode. Do you have it hooked up to a TV so you can play with the menus? I bet you'll find that it's trying to do some sort of movie surround mode to 2 channel audio. An easy fix with a couple of button presses. There's nothing wrong with doing that, but it'll send lots of audio to the center channel and would sound crummy if you just had the 2 speakers setup. You will want to use the LMC-1's 7.1 outputs to the LPA-1. I doubt you'll really have a need for the 'Line Out' jack once you get the LMC-1 configured correctly.
The 7.1 channel inputs on the LMC-1 should really only be used in 2 cases: 1) If you have a DVD-A or SACD player. These can't output the high-res audio signal digitally, so they require analog (unless you get into some really expensive gear) or 2) if you have a really nice CD/DVD player that has a superior D/A converter than your preamp.
One word of caution. There are a few threads over on av123.com regarding some slightly strange behavior by the LMC-1 when it comes to surround sound modes. They don't really seem to be problems, just 'quirks'. I would suggest that you take a look at
this thread for information.
