As stated in my first post it will be connected to the kit listed in my signature below, i.e lexicon RV-8 receiver, B&W speakers & panasonic projector. I'm just not sure £510 will get me any improvement over the PS3? Pic or sound wise.
but that doesn't help anyone give you advice. For audio you can connect by potentially HDMI, SPDIF in digital (both with or without DTS re encode) or analogue with any new player. Your receiver is too old for HD HDMI connection so you are left with SPDIF, SPDIF DTS re encode or analogue. The latter consumer a large proportion of your ‘flexible' inputs on your receiver which may be taken up by your long list of all your other kit anyway. We have no idea how you do your bass management with your kit and what role the SMS1 does here in your system or if you are taking advantage of BM and the ADC on the Lexicon (excellent but may only be stereo). Bass management will be critical for analogue connection. The SPDIF routes work well, especially DTS re encode. PS3 does the former and although basic works well enough for most people however many Lexicon users often just leave stuff to L7 anyway regardless. DTS re encode will give a modest but worthwhile improvement on Dolby based codec discs above straight DD.
Re picture then there is limited difference at best for blu rays doing 1080p @ 24 films when set up and calibrated properly, the difference occurs with SD (DVDs) and 1080i material (rarer) and we have no idea if you will use these facilities on this player or not. Most of us mainly watch 1080p @ 24. There are multiple ways of playing DVDs on your system and you may have a favourite way currently you will stick with or you may want to improve this area. This is one of the biggest jumps for the 'more expensive' players if you only use this player for 1080p @ 24 blu rays it is irrelevant however.
If as would be my best guess form a list you are just playing blu ray films using SPDIF and 1080p HDMI direct to what ever projector you have then the only tweak you can have is DTS re-encode (sticking with existing ways of doing stuff). This will give a minor tweak to Dolby codecs (majority are DTS now days) and so will be poor value for ‘£500' (can do this for £100 if you want). I have no idea if you want or can even use analogue connections (hence the original question) or if you want anything else as well (hence the original question). This information makes all the difference and does not come from a kit list. You need to state what you want from the player and how you intend to use / connect it for people to be able to advise whether it will effect audio and picture quality, a highly subjective area at best.
More money now generally buys better analogue connection, facilities (like DVD A, SACD, MKVs, streaming etc), build quality, speed and better SD video processing. People will not know if any of these are relevant, from a kit list, to you.