From what I've learned going from the pre out on the Denon to the cd input of the Sherwood would be a mismatch in terms of how the units are designed because then you run the risk of overdriving the input to the Sherwood, which has a preamplifier input (CD) which is designed to accept what used to be called "a line level signal," which would come from a different output on the Denon, usually labeled audio out.
A CD input is designed to accept the output of typical CD player, which generates a lower and more restricted range of signal that that potentially generated by a pre out output from a receiver.
You can't adjust the volume level with your universal remote control then of course; I ran into this with my Rotel integrated preamp/amp, I used the audio out from the 663 and adjusted the volume on the Rotel. The 663 manual states that the pre out outputs generate the same level signal as the speaker outputs, so you have situations where the output would be way too high for a preamplifier input to receive.
Obviously there may always be a range in which the levels would be workable (without distortion), sounds like you may have found that range.
