My HTPC didn't have any issues with my Z1 nor my Pioneer Elite nor the rx-a2030 I'm demoing along side the outlaw.
The display is very difficult for me to read but I do sit further away than you. I'm around 14.5 feet.
I'm happy with the sound quality and find it comparable to my older Z1, better than my Pioneer Elite, and on par with the rx-a2030 I'm demoing. But the power amplification is far better on the outlaw combo.
I'm a little torn between the rx-a2030 and the 975/7125 combo. The 2030 has none of the functional caveats the 975 has, has equal sound quality(IMO), but less power. And both are about the same price for me.
I'd like to stick with the Outlaw, but I'm very particular about things working a certain way.

Sounds like the 2030 might be a better fit for you right now, then. You don't want something that's going to annoy you every time you try to use it.

On the other hand, if those things don't really annoy you that much, the separates path gives you a lot more options for upgrading in the future.

Thats the conundrum I'm trying to solve right now.
The outlaw power amp is far superior IMO than the yamaha, but the functional limitations of the 975 for my purposes are a bit of a concern. Very unfortunate as I'd really like to keep the outlaw combo. But as you pointed out, I noticed myself not using it much as those issues did annoy me.

I thought about keeping the power amp and using the 2030 as a pre/pro, but then I'm way over my estimated budget of 1500.00.

It's nice to have options. You could go with the rx-a2030 with the intent that, when budget permits, you upgrade your amplification to the Outlaw 7125 and send the signal from the rx-a2030 pre-outs to the 7125. The 7125 is a nice amplifier. The other path would be the reverse, where you get the 975/7125 combo then swap-out your processor. Only you know how to weigh the trade-offs involved and whether the issues would keep you from using your system as frequently--I went through something similar recently.

Rob

Those suggestions are in line with what I've been thinking. I fear keeping the 975 will lead to frustration as I have perfectionist tastes...on a fast-food budget. I don't see any work arounds for the primary issues I have with the unit...cannot change the display to suit my needs and doubt there is a fix for the periodic bitstream raw playback.

What was the desicion you were faced with and what did you end up deciding on?

If you become too frustrated to use your system then you should definitely choose a different path. Given that you like the 7125 have you thought about a different processor with outputs that isn't as pricey as the Yamaha.

Yeah, I've thought quite a bit about it, but I don't have many options in my budget. I considered the marantz 7701, but reviews I read and people I talked to said the rx-a2030 sounded better - and going the marantz route would put me way over budget, yet possibly yield less sound quality than the yamaha route. I don't know of any other processors that would fit the role?!

I assume the RX-Z1 has analog inputs. Have you thought about getting a bluray player such as the OPPO 103 which would provide all the new sound codecs and keep using the Z1 until you find a processor within your budget. It will depend highly on the use for your system b ut I assume the Z1 has no sound deficiency and you just want to upgrade the video processing and get the new codecs.

That would be an option except the center channel amp began having problems fading in and out...which is what started this search for a replacement. Otherwise I probably would have just stayed with the Z1 and dealt with the lack of HDMI inputs and formats in a different manner. The pre-amp section works fine, and I did consider using it as a pre with the outlaw 7125 but after using newer equipment the last few weeks I'm enjoying having something that will playback DTS master, DDHD, etc...

Have you looked at any of the Onkyo processors as a bridge to beyond? The TX-NR727 looks like it might be priced right.