To sum up this thread here are what the members have suggested:
1. Speaker Placement
2. A banned guy suggested changing ICs
3. One said get better speakers
4. Many said address room issues
5. One said better electronics
The fact of the matter is that all of these are factors that each of us, regardless of how simple or exotic the system, must deal with.
Here is the 1-2-3 guide for dummies to acheive the best imaging in any room.
1. Know your speaker. Some speakers require a lot of space behind them (pointsource monitors, rear ported speakers), some do not (Planar Magnetics, front porters, linesources). Some require freedom from side walls etc.
2. Situate your speakers along the wall that best approximates the requirement and practical considerations such as actually having to live in that room
3. This is IMPORTANT: Define the 4ft sphere in which your head in your final listening position will be. This is the crucial area, the FOCAL POINT that all this work is about. Set up your chair there and proceed.
4. When playing go for TONAL BALANCE FIRST. More bass get closer to boundaries, more highs focus axis more towards listening position. More midrange move speakers closer to YOU. When you've got it just right go on to next.
5. At this point you should actually have as close to perfect as you can get via placement alone. We now enter the world of tweakdom. As pointed out localization is rooted in the high frequencies. The key is to first remove the noise at the same frequencies range that occurs in the room hence lowering the noise floor. next is to deal with the system induced HF distractions in the form of reflections.
6. 1st Reflections are here to stay. Accept that. There are three ways to deal with them. All are acceptable. One will work best. Especially when one of the methods is applied to the 2nd reflection point.
a. Kill it. Absorb the Sucker by turning the kinetic energy into heat
b. Diffract it. Use a plant or a stack of LPs scatter that beam into little pieces tus reducing the energy.
c. Deflect it. Send it somewhere Else. If the redirected path is more than 5.5 ft. You will know it is a reflection and not part of the original signal
7. Now you have localization down but your mids are a bit muddy and your bass is boomy. Now it appears you have long reverberation times. Drapes and soft furnishings will help here.
8. If you follow these simple steps you will get as close as possible to the maximum performance of your equipment in your environment.
9. Enjoy!