A very interesting topic indeed. Because I am in the market for a system within the nex 6 months in a den/living room (new home), I have heavily considered the following:
Put a majority of the money towards a 2 channel system that I can also watch/play TV/DVD/games through. Later, allocate a smaller amount towards a media room (if possible in the basement) for a simple, but decent, 5.1 system. This will be for "movie time" and, more importantly, gaming (XBOX). I've heard enough stuff to know my top picks for simple 5.1 systems that perform good enough for me and that works fine. It is well under 2K. I would like the 5.1 for EFFECT only, and this is the kicker for Movies/Gaming, when I want to experience the effects. I almost think that the 5.1 system for me is just 30% Movie and 70% Gaming (Halo 2 anyone?!?)
Here is my reasoning:
Listening to some extraordinary speakers and components for 2 channel, I find that I thoroughly enjoy the sound and experience more so than 5.1 HT setups that cost the same amount of cash.
A really good 2 Channel combo offers me the following: Unsurpassed Audio in a format that is simple, yet incredibly effective. It also limits the amount of speakers in the room and blends in, almost as if the speakers will be "furniture". Great for the living room.
However, Jason has a point that was originally a major concern. It was about watching movies. When I thought about it, I like to watch movies when I am relaxing, and will spend the most time watching in the living room. It is also a room that I will entertain in. Because of this, I don't feel the need for the surround sound in this room. I don't want the sub "booming" in this room either. Just some great sound from the mains - for everything (music, movies, gaming) until I can explore a "media room".
Lets say I bought $6k speaker pair and $4000 of Integrated Amp or Pre/power and a solid CD/DVD player. The sound I would get from this, to my ears, is stunning. Jaw dropping every time I listen.
I've heard 10K of 5.1 surround, and it was terrific when it was "movie" time. Terrific during TV time. Gaming Time...and Music Time. It was not Jaw Dropping, just Terrific!
So, for the simplicity, nature of the room, my needs...the 2 channel system gets the bucks. The 5.1 will wait for a much smaller budget. (Give me the Jaw Dropper 110% of the time. For those of you who have heard magical 2 channel, I think you can relate. )
It's just a matter of identifying your needs...And to finally answer your topic, yes it is overhyped, but there still is a need for the multi-channel formats.
My 2 cents