I've got this aging setup:

Arcam Alpha 8SE CD player
Arcam Alpha 8 amp
Arcam Alpha 8 power amp
Tannoy Mercury MX2 speakers

1. What's the most cost effective way to improve the system?
2. What's the best way to connect an iPod to it?

What's wrong with the system? If you're relatively happy with it and just want to spend cash, buy loads of music (and alcohol/drugs). That's a reasonable system. Having said that, speakers are probably the weak link. So:

1. Beer 🙂

2. Via a dock, not sure if many/any can access the digital out from the i-pod, but those that can will be best. You'd be better off playing WAVs from a computer and DAC combo.

Oh, If you're biamping with that setup, and it's possible, try using the Alpha 8 as a preamp only and the 8p to power the speakers. To my mind, the benefits of separating pre and power are obvious. Passive biamping not so much.

ipod HiFi pick one.

using proper stands and cable and properly set up?

If so replace all with reson

As for iPod use a dock.

Don't have an IPOd but my mate coonects his to my HI FI with a 3.5mm cable that plugs into one of the amps inputs. Think I got it in Richer Sounds.

1. What's the most cost effective way to improve the system?

What kind of music do you listen to? No point in recommending some accurate yet bass light speakers if you're into D&B, and likewise no point recommending floor standers with masses of bass if you only ever listen to classical music! But from the sounds of the rest of your equipment, would recommend speakers before everything else. But as RichPenny says, seperate pre/power amps or bi-amping can make a good difference.

2. What's the best way to connect an iPod to it?

Eeeesh. You've spent loads of money on HiFi and you want to listen to low bitrate MP3's on it! 😕

If it matters that much, just buy any old iPod dock that connects to the amp via phono connectors… Or re-rip all your music on your computer as WAV's, buy a half decent external USB/Firewire Soundcard with inbuilt 16/24 bit DAC (look at Tascam probably) for about £100-150, then connect it up to your amp… Oh, and buy a MASSIVE hard drive for your computer before hand as most likely you'll need the storage space!

Looks a decent set-up, but if I was changing something I'd consider the speakers first.

3.5mm cable that plugs into one of the amps inputs.

That uses the output of the onboard headphone amp, which is not ideal. You want a dock which uses the line level outputs on the multiway conector.

Bigger & better speakers with improved cables would be my first port of call I think.

You want a dock which uses the line level outputs on the multiway conector.

The standard iPod dock has a line level output.

Your biggest problem is that the system is both quite old but still well balanced, ie everything works well together. Whatever you change is going to be modern and therefore quite a bit more capable than the rest of the system (this would be especially true of speakers). The result will be that you will be frustrated with whatever you don't change and you won't be getting the best value for money in terms of performance from the new kit.
Speakers have moved on a lot so they offer an obvious first upgrade I think it would be better to start at the other end with the source (cd players have also moved on a heck of a lot recently). I would only change your speakers once you know for sure that the amp yo have is the one you will stick with.

Add another power amp and Bi-wire it
Unsure but you may be able to send the CD player away and have it updated.
Can you get an Ipod dock with gold terminals?

Arcam have just introduced a new version of their iPod dock for £150 with a remote. Or you could splash out £390 for a Wadia 170i dock. I believe the Wadia is the only one that can output a digital signal from an iPod for use with a separate DAC if you have an extra few hundred to a few thousand to spend!

My local hi-fi shop says the Arcam is a match for the Wadia if you are only interested in an analogue out. Whether either is significantly better than the standard apple dock that I am still using from my 2g classic is another question.

Or you could buy my aging Naim system from me – I feel like an upgrade. 😆

how much is your naim system and what does it include?

Naim dont include anything apart from a great sound

Why do people think that adding in the iPod would be an upgrade over a red book CD source? Unless the iPod is using lossless or equivalent the sound will be a backward step.

sadexpunk – I have mailed you. Gary

I am not sure that people really think that adding an iPod is an upgrade per se – but it does allow you to exploit a new technology in a manner different from its primary purpose and provide the user with the 'convenience factor'.

OP asked two questions not just one?

aye, i reckon we all know ipod will be inferior sound. just the convenience, and ability to put it on shuffle and listen to great songs youd forgotten about from deep within lost albums 🙂

Yep – Muppet boy here didn't read the original OP properly.

Or you could buy my aging Naim system from me – I feel like an upgrade

Don't have an NAP140 by any chance?

Why not connect ipod with cable that plugs into headphone socket on ipod then outputs to two channels to amp….then go out and spend 80 quid on a set of GRADO headphones…Massive improvement in sound and you can use headphones on the move!!!