hi swami,
I am using same. wanted to route tata sky via avr, but thats okay as I too am focused on music right now.I too have philips dvp-642k (no hdmi). using coaxial now. will optical be better? Also tell me speaker positions, how much distance apart? should I use pure audio setting on avr? or stereo? any other configuration needed on avr?
also, i feel I need a sub as well. missing on something.
I am not sure about there is a difference in optical vs coaxial. I understand that both are digital and for short distance should provide same quality; since, the digital signal in both cases will be converted to analog within your amp.
My speakers are 1-1.5 feet on either side of my TV slightly toed inwards to focus on my pillow position (the set up is in my bedroom

)
I experimented with avr settings and found that "direct" setting of denon (might be, "pure audio" in your case) gave me better results. On the other hand, "stereo" mode was good but slightly lacked the clarity (mainly observed in lack of crisp quality of vocals). Note that in direct setting avr doesn't allow me any tweaking like equalizers etc.
There may be many configurations on AVR needed or possible. I am still in the process of discovering those. By the way, try speaker setup for fronts and keeping others as "no". Also, try crossover settings and speaker bass crossover and share your experience with us please.
No. I am not thinking of a sub at the moment. Not for CD music, I mean. I am quite good with a pair of bookshelves which do give me enough (only needed) bass. My opinion might change later. For now, I just plan to get a sub once I start upgrading my system for a full 5.1 setup for movie/multi_ch music.
PS: Haven't seen a single DVD (movie) till now after my purchase, just listening to any and every CD that I can find in my rack!