I have a panasonic blu-ray and panasonic plasma both 1.3 capable. The problem is I'm running the HDMI through my Denon receiver which is 1.1 and therefore converts the 1.3 in to 1.1 out to the TV as I understand it. I'm thinking about upgrading my receiver if you think there would be a vast improvement in picture quality.
No. Again, the difference is ONLY there is you need higher bitdepth because you have a video processor in the chain which would benefit from being able to work without an 8-bit bottleneck at its output.
This is not the case in your system since you're not processing the video. So there is no benefit.
And in any case, the benefit is not in any way vast, and even in the possible situation I describe, is relegated to video engineers and anally retentive people (like myself) who sit around with test patterns and displays with the bit-depth capabilities to even benefit from this (which you don't have either.)
And further, you can get 10 and 12-bit video with HDMI versions previous to 1.3. You just needed to do it at 4:2:2, 1.3 adds the ability to do it in 4:4:4 or RGB. Again, not really an issue for you in any way whatsoever I suspect. If you have to ask the question, then NO going to 1.3 gets you absolutely nothing in terms of *video.* Audio may be a different story entirely.