iMerge can probably be had on eBay for a much more reasonable price than new - but I think they are about $2,000.00ish. Depending on hard drive size and how many zones you want. One of the cooler things about the iMerge is you can get 1-3 zones (or more) from the single box. So, your ENTIRE CD collection is available to multiple users at the exact same time. You like one song from an album, your wife likes another... no problem, you listen to what you want.
There are several options for 2-way feedback.
1. Use the television. Any television plus a 1-way touchpanel can navigate through the setup screens of the audio server. If you have 2 1-way touchpanels and screens available on 2 floors, then you really don't need to go 2-way.
2. Use a in-wall touchpanel that is hard-wired like the TPS-2000 which is $2,000.00 It's almost identical to the ST-1700c except that it is hard wired, and can receive 2-way information (disc name/artist/title/etc.) It also can be wired into home intercom systems and has video inputs so you can watch TV on it... Been seriously considering one for our master bathroom.
3. If you are willing to put up with a few bugs as Crestron works out the details and you are wired... or more accruately unwired with wireless networking (802.11b) then Crestron's new panel, the TPMC-10 is incredible with a 10" screen and great graphics and integration for MSRP: 3800 bucks. Expect to pay less than prices I am listing - sometimes considerably.
SWITCHING: Switching is a major pain in the neck... It sounds good, until you realize that you want to send composite, s-video, component, and RGBHV to multiple locations, then the question becomes: how much do I REALLY want to send video to multiple displays? Going strictly component & high res requires no less than a 4x6 RGBHV matrix switcher... about $2,000 or so. I would expect about $4,000.00 or more spent on switching to really handle all you video switching needs with some audio possibly as well - though the PAD-8 should do a bang up job of switching your audio as long as you have no more than 8 audio sources.
Check some photos of a 2-way panel I recently sold:
http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&category=61323&item=5737053847
It shows that you can pick stuff up cheap on eBay - but are stuck dealing with paying for repairs if it breaks or doesn't work on arrival. Crestron has a 3 year warranty which may be worth it as they are really good about dealing with customers who have bad product.
Anyway - once again - WHERE ARE YOU LOCATED? I can help where I can but if you are local we could really get down to some serious talking and I could likely get you decent pricing from my company.