I bought a Onkyo TXSR501 receiver last weekend. I had no trouble setting it up, and the sound is nice.
I routed both my TW HD cable converter box and my DVD player to the 2 component inputs of the receiver through 3-foot cables. Then I routed the output of the receiver through a 20 foot cable to the component input of my Z2. This cable, by the way, is actually two 10-foot component cables hooked together with 3 RCA barrel adapters -- so this cable is in no way the "ideal" cable, and will eventually be replaced.
The result? The picture quality is excellent. Both for DVD and HD material. I had 2 engineer friends over who both are into HD tv, and they agreed it looked great (and we were looking for problems).
For the DVD material we just looked at image quality (obviously the DVD quality was less than the HD, but still quite good). For the HD material we were comparing against a second TW HD converter box that was connected via DVI with a 6 foot cable, so I could A-B them by switching between the Z2 input 1 and input 2, and it was difficult to tell any difference in quality. All HD was at 1080i to the Z2.
So purely from a practical standpoint, both the Onkyo receiver component switching (rated at 50 MHz) and the hacked cables work really well. Further, while I respect all the comments from experienced users who talk about DVI, I certainly could not see any difference that would warrant going to any trouble to use DVI. Maybe for DVD it might make a difference if it were digital all the way, but I could not see this with HD tv.