The marginal cost isn't high for this add-on, so you can get the picture quality boost cheaply.
The bad side, of course, is that you can forget about much improvement in sound on titles that use higher bitrates and newer codecs than old Dolby Digital or DTS. All sound is downconverted into DD for output to your receiver, probably with a 640 kbps ceiling. A real standalone player would have an HDMI output or multiple analog outs that could carry 7.1 uncompressed multichannel sound to your receiver (even if your receiver doesn't have the newest codecs, you can let the player decode it), in addition to routing video through the receiver. But this costs significant money right now, and you can throw away or sell the Xbox HD-DVD add-on later when good standalone HD-DVD players become available for cheap (same goes for the receivers). If you don't have a receiver with HDMI or multiple analog inputs, then the inability to get high resolution sound is even less of a problem, because you'd have to spend $$ to get both a more expensive HD-DVD player and a new receiver.