Is buying a receiver w/o HD audio support crazy?

I am completely confused about what the best course of action is. My dad ( yeah, I'm 17 ) has KEF 104s that he says I could use ( maybe, he likes them ). They're from the 80s as I recall and I read a bit about foam mold or some other difficulties/degradation of the sound. I also can purchase Energy Connoisseur C9 Speakers for 550 (2002, 1300 new ) or Polk RTA-11 Speakers (1992, 1200 new ) for 250. I was under the impression that age didn't matter very much with speakers but it appears I may have been mistaken.

Last year I bought a Z5500 set ( 5.1 ) which has a miniature receiver built in. It accepts 5.1 via optical and decodes DTS/DD. I know I should get a proper receiver ( I'm eying the onkyo 606s if they go down a bit once the new models flood the market ) but I doubt I'd notice as much of a difference as upgrading my speakers in the meantime. The speakers are all connected via speaker wire to the sub ( which connects to the console ) and I believe that it powers 60W per channel at 8 ohms ( new to this ).

I have 820 dollars that I can spend ( before I'm broke and have to work for money at the rate of 100 dollars a month ). To benefit from blu ray's new HD audio formats I'd have to get a ps3 as well ( I use a computer with a blu ray drive atm ). Would I really notice a huge difference between DTS and DTS-HD? How much would 5 decent speakers, a sub and a receiver ( w/o HD audio support with but HDMI support ) cost? Is it wise, or even possible to run 3rd party speakers off of my current logitech system?

Thanks for your help!

Thanks for the information Greg. I looked into the Pioneer VSX-817-S and while good value ( according to reviews ) it doesn't have HDMI which is a concern for me ( my 360 for ex. uses HDMI and cannot output optical at the same time, makes me wish I bought a ps3 lol ). I assume optical cables would pass 5.1 dolby digital/DTS. I just found http://www.chadledford.com/?p=50 so I guess I can get by without buying their proprietary optical output accessory.

Is this a question of needing to run 3 optical cables and pairing them with HDMI connections? The other issue is that I couldn't find that receiver for sale on amazon( one seller, not amazon, 235 dollars )...I assume that a receiver that can extract HDMI audio ( non-HD ) would cost quite a bit. Do you have any other recommendations for 5.1 receivers?

Edit: I found the Sony DG720 and that apparently can decode HDMI audio but it's not for sale again. I also found Onkyo-TX-SR576 and Onkyo TX-SR507 which appears to fit my needs. It can decode HDMI audio and should sounds pretty good for 300 dollars. If anyone has any recommendations let me know. I know yamaha and denon make receivers but I couldn't find any that decode audio for somewhat cheap...Can anyone tell me the difference in quality between the 576 and the 507? The 507 supports more formats but that's irrelevant if it's quality is worse.

Is there any difference between component and HDMI ( video wise )? I think I may have a component cable around here and I could use that.

I still am unsure if spending 800 on a better speaker system ( no ps3, I would still have blu ray, but I'd only have standard surround sound since it's from my computer) would be better. I may look around the forums for a really good receiver/speaker set. The KEF speakers are great for 2 channel but I think they'd be too good. They would sound great and the side speakers would sound bad.

EDIT: I couldn't find the 817 since googling for it for some reason gives a link to a different submodel. 817 K or something.

Yes I did. I was surprised that it was being sold by amazon while the black version was not...I decided if I was going to buy a receiver I'd get a 300 dollar one ( onkyo 576 ). I'd likely want to buy a new center as well but from what you've told me I can pick up a solid 200 dollar center ( I hear it's important for dialogue etc. ), and be alright. I'll suggest that receiver to my parents ( although they tend to run from technology haha). I would definitely get that if I wasn't going to need 3 HDMI ports/external wiring. The wiring is already a mess back behind my stand.
Budget:
Ps3: 300
Onkyo 576 or 507: 300
KEF speakers: free
New center: 200ish, going to check reviews.
Old satellites: free
800 isn't bad for HD 5.1 and if my KEF speakers work with that receiver I think I'm set. It's good to know that logitech didn't go all proprietary on us hah. I'm glad to know that the logitech system can be reconfigured. The 4 ohm is apparently quite low and I was wondering what your speakers resistance is ( and if hooking the KEF up to the logitech ones before getting a real receiver would be a bad idea). Thanks so much!