Peter and everyone, I have compared listening to the Lumin T2 and Anthem 1120 as you suggested with signal processing set to no, which means no ARC and no subs. The sound is ok but I have listened with my wife and daughter and we all agree that it sounds better with ARC and the subs.
If it is specifically ARC and the subwoofer that is making things sound better, then I would assume the improvement is coming from the flatter in-room frequency response and lower frequency extension. In which case, I don't think different electronics will be able to provide you with the same type of benefit. If ARC and subwoofers added sounds better I think it is fine to keep using them for now, even if that means ADC and DAC is in the chain. Going through ADC and DAC again is not inherently a bad thing.
Room treatments can improve the in-room frequency response and can be fairly inexpensive, more so when you consider the acoustic benefits.
Alternatively, you could achieve a flatter in-room frequency response if the front-end software you use to play music on the Lumin offers parametric EQ or even better room + speaker correction. Sending music to the Lumin using Roon, which has parametric EQ and convolution filter support, would be one option. Some other playback software with Dirac Live in the mix would be another. HQ Player is third option. Since the filters are applied on the computer before sending the music to the Lumin, you would get the benefit of the filters while still using the Lumin's analog output directly without any ADC and DAC conversions afterwards. It is also theoretically possible to get a little more bass extension this way, but not too much or you risk overdriving the speaker woofers.
The downside is that setting up the filters could be quite complicated and not something you want to take on. (Except for Dirac Live which will measure and automatically calculate things for you with a microphone similar to ARC.) And it also places some restriction on the playback software and hardware you would be able to use.
For more bass extension on par with your subwoofer, you would probably need new speakers that play much lower at the listening volume you desire, if you aren't going to use a subwoofer.