Replacing HTIB with entry-level receiver

Two years ago, on a strict budget, I bought a cheap HTIB system that the discount stores sell: RCA RT2770. I immediately replaced the front speakers with vintage Infinity bookshelfs, and soon afterward upgraded the rest of the speakers including the subwoofer. Each speaker upgrade brought a big improvement in sound quality.
Now I am ready to replace the receiver unit with a budget-level 5.1 receiver. I have looked at the models selling for $200 to $250 at the big box stores: SONY, yamaha, pioneer, etc. I'm also looking at Sherwood receivers in the same price range. Do you think a receiver in this class will give improved sound quality over the RCA unit? The RCA receiver has "real" output of 50 watts RMS x 5, but is very light weight. So probably has puny capacitors inside.
Features that the RCA lacks:
1)video I/O jacks, especially HDMI
2) support for DTS audio
Every budget receiver I have seen has these. What the RCA does have is a USB port for direct playback from flash drives and flash-based MP3 players. Looks like no budget-level receivers have this feature. I guess I can live without it.

Thanks everyone for the input. I decided to order the SONY STR-DH800 as a major web retailer is clearing it out right now at a great price. The reviews on this unit are pretty good overall: has more features than I expected for the price. Not too thrilled with the proprietary SONY features built in, but even if I never use them it still looks loaded with options.

I wish there was a way to use the SONY DMport with Zune or generic MP3 players with mini USB. But SONY has a history of fighting emerging technologies. I think their DVD players were among the last to support MP3 (if they even do). Anyone remember ATRAC compression, Minidiscs or going waaaay back, the "Elcassette"?

I am generally skeptical when people tell me they can hear differences in sound quality between brands of electronics, but I am open to being proven wrong. Speakers, yes, anyone can hear the difference between price levels. And its possible that cheap units like the RCA RT2770/2870, which is all IC chips inside, may sound inferior to "big iron" amps & receivers with discrete components & bigger capacitors. The RCA replaced a JVC stereo receiver from the mid 90's, back when 50 watts RMS/channel was typical component output.
The JVC weighed over twice as much as the newer RCA. There might be a subtle difference in sound quality, but since I never did A/B testing with the two amps, I cannot tell. For a budget-level system, I think money spent on better loudspeakers is the best return on the dollar.

The STR-DH800 arrived yesterday, and took me a few hours to set up. No real problems, but this was the first time I had wired a full AV receiver. And my equipment space is cramped! I will still need to do a little more tweaking, but it's basically working ok now.

The biggest disappointment: the FM tuner. The stereo quieting is no better than the RCA cheapie it replaced, maybe a bit worse! It's possible that the RCA had some high-frequency rolloff. But still, what about SONY's reputation for super tuners? The area where I live is having some serious humidity and summer tropo issues right now, so I'll give it some more time. I have a JVC KT-HDP1 tuner plugged in that is MUCH better anyway.

The pro's: Sound is a big step up from the RCA, mostly because of improved bass. The RCA was setup for 3" full-range speakers, so the bass rolled off quick. That meant the 6.5" woofers on my Infinity front speakers were mostly wasted. But now, they carry some of the upper bass, so the subwoofer sounds clearer and more solid.

A question: I had some mis-information about what HDMI pass-thru means. I was surprised that the audio going in thru HDMI can be played back thru the system. I thought pass-thru meant only the tv got the sound. And I thought somebody said the receiver did not have to be turned on to pass through video to the tv. So far it looks like it does.

Some random observations after messing with the DH800 for a few days:
Overall I am very satisfied with it. I can shake the walls with it, if I wanted to.

- The lack of pass-thru in standby mode is not a problem, because I can simply bypass the whole receiver if I don't want it. I wanted a good number of HDMI inputs because my TV only has one. But I can send HD from my Satellite tuner thru component to the TV. Which made me wonder why would I want the receiver to pass-thru anything if it is off? (Other than the geek factor I guess).

- I can waste lots of time trying out all the many different sound modes. I can hear no difference at all between Dolby PLII and Neural-THX with stereo input. Likewise on DVD's that have DTS and DD tracks, I notice very little difference. But there's always somebody in forums who says "Gotta go with .... because .... sounds like crap"

- I always knew that some MP3's give a slushy sound on the surround channels, it is even more noticeable with this receiver. I'm going to try a player that supports .ogg files, which sound better to me. But for best sound, nothing beats the original cd.

- SONY's Enhanced Sound "Portable" mode eliminates the slush on MP3's by reducing the sound to 2 channel stereo, AFAIC. Is this SONY's idea of an enhancement?

- I did not find the manual as hard to understand as many of the reviewers on Amazon. The large number of setup choices could be confusing, but just following the steps worked for me. Maybe I am just above average

- Nice feature is setting a sound enhancement for each individual FM station. Now if only the reception wasn't so noisy....having lots of storms here now, maybe better in the fall.