I have the same stereo and I find it to be pretty decent.
Here are my settings:
Fade: +1 (to the rear)
How it's going to sound depends a lot on the music that you like, because the music is not being recorded in a standard way the movies are and it never sounds good with a flat equalization.
My music is a mixture of rock from the 80s to present, some classical, and some current pop hits. The 80s rock is lacking bass and the pop is lacking treble and has excessive bass, specifically the hip-hop and R&B so it took a lot of tweaking to get to a point where everything sounded acceptable.
To test it, buy Jesse Cook's Free Fall track from the Free Fall album preferably lossless or high mp3.
That tune has a wide dynamic range and sounds spectacular when you crank it up. I play it as a 320k MP3.
What the stereo is lacking is a loudness setting, i.e. a way to emphasize the bass and the treble at lower volumes to compensate for the human hearing's reduced sensitivity. If you boost the bass and the treble for that reason, then the next time to want it louder, it will distort.
The radio sounds bad, because the bandwidth of the signal is limited. Sirius is the same or worse than the FM and I'm not paying for such a poor quality. I have no problems with the reception.
If you still want to upgrade, keep the stock stereo and speakers and install a JBL MS-8 sound processor. That's the best bang for the buck ($490) from what I have read. They might have a newer generation box because MS-8 retailed around $800 when it came out.
Take this advise for what it's worth. I can't call myself an audiophile since my home systems don't exceed $2k each, but I have spent a considerable amount of time researching and calibrating them. I have a Pioneer BDP-320 blu-ray player and VSX-1019 receiver with Polk Audio TSI400 fronts, TSI300 surrounds, and I don't remember the center (CS20?). The sub is a 10" or 12" Klipsch.
My other system is a Technics stereo with amplifier, CD player, 12-band sound processor, tuner and Cerwin-Vega AT10 speakers. Oh, and a 3-head tape deck, not that I have any tapes anymore!