I will have a similar set up. Denon 4802, Sharp12000 markii,HD DVD or Blue ray player still to be decided probably Toshiba a-3 . I will send the video directly from the toshiba to the projector via hdmi\\dvi connection, and the audio to the denon via an optical, or coax cable depending on the output of the dvd player. there are no hdmi inputs on the back of the Denon, so that option is out.
Ther are not 7.1 rca outs on the back of the toshiba so that option is out. In other words your setup should work. Let me know if it does or does not work, especially with 7.1 material such as gladiator which I believe is 7.1, or whatever other material you have.