MY LIVING ROOM SYSTEM

What I Do:

Watch TV on a HD DVR (5.1)
Watch Standard DVD movies (5.1)
Stream movies from PC to XBox 360 (Capable of 5.1, but Kenwood doesn't seem to support)
Watch Netflix Instant movies on XBox 360 (No 5.1 Support yet)
Play video games on XBox 360 (5.1)

My System:

RECEIVER:
Kenwood VR-405 - This thing is pretty old. I already had to repair the remote sensor, it only has 1 optical audio input and I need 2 (XBox and HD-DVR), and I think I just figured out this thing is the culprit that's preventing me from streaming 5.1 to my XBox 360 (Same movie files work fine with 5.1 when streaming to XBox hooked up to my ONKYO TX-SR502 receiver downstairs).

SURROUND SPEAKERS:
Sony Surround Speakers = SS-MSP75 (max input 100W); SS-CNP75 (max input 100W)

SUB
Sony Powered Subwoofer = SA-WMSP75 (75 Watt)

Situation:

Because of my living room layout, I would like to either replace my rear speakers and go with mini wall mounted rears or with in-wall speakers. I recently came across a free pair of the following "in-ceiling" speakers:

OnQ (not sure who the actual manuf is.

Blue Line Series 8" In Ceiling Speakers (Model 364655-02)
Impedance - Nominal 8 Ohms
Peak Power Handling - 150W
Efficiency - 90db
Frequency Response - 50Hz - 20KHz

Question:

1) Would these speakers be a good alternative to my current rear Sony speakers, which I imagine are pretty poor AND would they work okay as rear - In Wall speakers for my 5.1 surround system. If these speakers are less than ideal, I'm thinking I could sell them and use the $ for others - any suggestions on good rears priced around $100-$200 for the pair?

2) What jumps out as the greatest weakness(es) in my overall system? What would you upgrade if you were working with a budget of $250-$500?