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I'm not sure which Onkyo model you have, I have an 807 and a 605, there is a long thread about the 807 on this site and all the failures of the HDMI board because of over-heating. I had to send mine to the shop twice before they got it fixed and even then when I got it back the iPod dock no longer worked. I liked my 807 for the features and it was an upgrade for me from the 605, that is until it crapped out and I read about how many others crapped out as well.
While it was away being fixed I picked up a Denon 1912, it was a cheap replacement while my 807 was in the hospital.
Right now my set up has the Denon running and the 807 in a box. It does as good a job as the 807 did for watching tv/movies as I never relied on the 807 to up-convert my video, my Panny Plasma does a fine job without any help from the receiver. I also fell in love with the airplay feature of the Denon.
Oh and yes you can't cook an egg on top of the Denon.




















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while turning off the "scale to 1080p" solved your issue, it's not because "your projector is 720p"... it is because the bandwidth required for 1080p is too much for that cable length in that setup to "work right"... by eliminating the 1080p feed, you reduced the needed bandwidth to a low enough level that the signal is now "ok"...

