I've just updated the firmware, and it looks like it's been fixed. And I mean it is really fixed. Whoever tried the DPLII Music and didn't like it, try it now, it's very different, you may even like it, just set Width between 3 and 5
Seems like the DSP is not screwing up the front soundstage and is not messing with overall timbre anymore. No more harshness, subdued deep bass and exaggerated midbass. The ToneDefeat set to OFF by itself does not do it anymore either, even if controls are set not to zeroes. Un-f-ing-believable. If the whole thing sounded like this right away I would have never even considered trying Arcam or Cary.
There is still a bug with ToneDefeat left that makes the calibration with internal signal incorrect, but I'm not concerned much about it.
Interesting that the Outlaws must have known about this problem all the time and never released any informaiton on it.