If I wanted to 'move up' a notch in image quality (dynamic range, resolution, sharpness etc), would it it more sensible to invest in better quality lenses (such as the Canon L series) or would I achieve better results upgrading to to one of the newest DSLR'S such as a Canon 5D
Be careful Stephen, you're heading down a road that leads to a Phase One P45 and Rodenstock Apo-Sironar Digital HR lenses!
Seriously, if you're chasing "quality" then the first and most important quation you need to ask yourself is what size prints do you make? If the answer is A4/9"x6" or smaller then you'll find it very difficult to significantly improve on your current results through equipment. Indeed even if your ambitions extend to A3/9"x14.5" prints you'll likely discover that the most important gains will come from better technique. Careful exposure; a tripod or bracing yourself more firmly; balancing shutter speed, ISO, and aperture to maximum advantage; attention to post processing; and meticulous effort with focusing will all yield real increases in quality.
Of course none of these is as sexy as a shiny new 5D or 85 1.2L, but the hard truth is that your current gear is far more capable than that used by most of history's greatest photographers.