A bit too much misinformation in this thread. Let's try and sort this out."You'll have to use Option #2 and although you will be able to control the volume of the FL/FR speakers, the sub will not be recognized and therefore you would have to control it's volume using the sub's own volume knob."
No. He will need to balance the sub's volume nob to match output once with the other speakers. Afterward, volume on the receiver will control sub volume as the sub is using the incoming variable speaker-level input as a baseline to amplify from.
In addition, Option #1 may work if the receiver does variable level output on the Video Out port. If Video Out is variable as an option in the receiver's menu, then it would be the better choice to run that out to the sub as you'll also capture the center channel's bass in that case."That of course means no 5.1." "Just keep in mind that this is essentially a stereo system. There are only two source channels, and the Dolby Surround process uses logic to create surround effects."
Not true. Depending on source material it will absolutely spit out full, real surround. Squinting at the picture, it looks like an STR-DE315, which supports original Pro Logic. In example, modern consoles encode to Pro Logic II for transmission over analog stereo connections, which Pro Logic I still decodes, just not at PLII quality levels. Stating that a signal encoded to Pro Logic at the source is not true surround, or is only two channels is like claiming that Dolby Digital over Toslink is only one-channel audio because it is encoded to a single bitstream.
So, linkseo, hook up your new speakers to this receiver and enjoy your real surround package! Make sure to find and turn on the Pro Logic decoding option on the receiver side, and look for audio output options on your source devices with names like Pro Logic II and Dolby Surround. I would still absolutely recommend getting a new receiver as your next upgrade, but this is a perfectly serviceable starting point.
When you do get a new receiver, I'd suggest getting something that has Audyssey's MultEQ or higher level room correction. That stuff is bloody brilliant. As jds pointed out, that Denon 1612 is a great deal with fantastic room correction.
Go learn more about what MultEQ does for you. Just make sure to ignore anything that only does 2EQ.