I guess I don't get a lot of this. The OP has several base issues to deal with.
1. The Room.
The room is admittedly small. The OP has repeatedly stated it is a very live, highly reflective space, and although the OP regards this as an advantage, it generally is not. Most on this forum try to limit high reflectivity in their listening space. Hence the effort put into room treatments and DSP room correction routines. The reflectivity issue will only get worse with more loudspeakers.
There is reluctance to install true overhead height channels.
There does not seem to be any satisfactory placement for side surrounds, lack of side placement is especially troublesome. It is primary to getting a good result with Atmos reproduction. I would also argue it is just as important to a 5.1 rendering of Atmos.
No AVP, regardless of brand, is going to remedy these issues.
2. No digital (HDMI) connection.
A digital connection is desired, but not required to achieve the above. It does however open other methodologies that an analog front end just does not offer.
3. Component Quality.
The OP has repeatedly noted how much he values the quality of his existing system. Many high end brands have been mentioned. Statements about the "sound signature" of power amps and preamps, even a mention of tube equipment. Quality of DACs, etc. All of this may well be dismissed by many as high end hyperbole, But the OP obviously believes in it and values it highly.
To then assume it can all be replaced by a budget, Chinese Pre Pro is very odd.
What are we really talking about with respect to tonal quality? The fact is, the major sonic signature of any system comes down to the loudspeakers, the rocm, and the interaction between them.. Everything else is secondary by a wide margin, assuming the source material is up to the task.
I don't want to sound critical, but It all just seems to be a big ball of twisted logic.
Very good points. It might be a case where a 5.1.4 setup makes more sense. It's always difficult to say what adding more channels will do in a space (so many variables at play here). I do know that even in a lively room you won't hear the material you can't reproduce.
Where I'm at is there isn't any way to experiment or experience anything more in the current setup. I wouldn't necessarily say that the budget prepro will be a bad route (I don't know enough about the TW to have an opinion), but since people on here are much more music focused I'd certainly advocate finding gear that suits this preference. Something like the AVM60 being older and used may not match up spec wise, but it's a known quantity when it comes to sound quality and handling source material properly. This is a case where the tastes and budget are at odds. So, you have to find a compromise that will hopefully work.