Musings on an ideal AVR upgrade ($3-350)

With all the threads by people looking for AVR's in a certain price range, I know these can sometimes be frowned upon. But I have not seen one in my searches that expressed quite what I am looking for here:


I am looking to help a friend pickup an AVR in the $3-350 price range. He is using a Mitsubishi WD-57732 rear projection DLP. It has 2 1080p HDMI inputs and 2 1080i component inputs. His basement is around 4 or 500 sq feet. He is upgrading from an old Denon-486 which died, but that he was quite happy with. He has some older Bose speakers for fronts and center, and some lower end Polks for surrounds. I don't have the model #'s on these. He will likely upgrade his speakers in the future at some point. He mostly watches sports HDTV channels via cable (box not card), and occasionally DVD movies. He will soon add a Blu Ray player as well. He will likely not add any other components or use his setup for anything else, including music. It does not matter if the AVR supports 5.1 or 7.1, as either would be acceptable.


He is not dead set on needing to get the lossless audio formats, although obviously it's a nice plus. He's really not a tech guy, and this is basically a bar/hang out spot, not a reference home theater or anything.


We are open on having the video signals sent straight to the TV, rather than the AVR since it opens up a # of options AVR-wise. I understand that sending video through the AVR either through component or HDMI is tricky business. Many of them degrade the video signals in some way, even if only using a "passthrough" setting. We do not want that to happen.


It seems like with his budget, he cannot expect the AVR to have adequate VP capabilities, and should plan on sending HDMI directly from the cable box and the BD-player straight to the Mits TV for video. The only way I would advise him to send HDMI into the AVR is if a quality passthrough option is available which will not degrade the video signal in any way. (Option #1) At this price range, I would not expect an AVR to upconvert video signals to 1080p, nor to send component inputs to the HDMI out, with any quality.


Since cable boxes and BD-players do not have dual HDMI outputs, and if we plan to send the HDMI straight to the TV, we would not be able to benefit from the audio improvements available by sending HDMI to the AVR either. So we should probably not even look for an AVR with HDMI at all, and get more bang for the buck out of the AVR by looking at older models, using either an optical/coaxial setup (Option #2) or multi-channel analog inputs (Option #3).


Is it possible to get better than plain jane DD5.1 and DTS using optical/coaxial outputs? I know not the lossless formats, but what about DD+, etc? If not, then there is more incentive to convince him to buy an AVR with HDMI that will not affect video signals in the "passthrough" mode (Option #1) or an AVR with multi-channel analog inputs (Option #3).


If we can get a quality AVR in his budget range that also has multi-channel inputs, then I would advise him to forego HDMI altogether, and send the DD5.1 from his cable box to the AVR via optical, with HDMI straight to the TV for video. And I would have him send multi-channel analog inputs from the BD-player to the AVR for (up to) lossless audio, with HDMI straight to the TV for video. (Option #3)


As you can see, I am thinking out loud here, and looking for feedback. Option #3 seems the most realistic to me, but it depends on whether or not I can find a quality AVR with multi-channel inputs for $3-350. What are my options here?


If they are out of range, then the question arises again about what are the best quality sound formats that I can expect by using optical/coaxial from the BD-player to the AVR? (Option #2) Strictly plain jane DD5.1 and DTS? Or at least DD+? Even if just DD5.1 or DTS is available, this option would not necessarily be out of the question, but perhaps he can even go cheaper on his budget. If this is the case, I would like a list of AVR's which would give him the best bang for the buck on a strictly optical/coaxial type setup.


Option #1 is for AVR's with at least 2 HDMI inputs that will pass the video to the TV without degrading it in any way. The AVR does not need HDMI 1.3, or to be able to decode bitstream lossless formats. I would look to have the BD-player decode the DTS HD-MA (probably looking at the Panasonic BD50 which reportedly will do this), and have the multi-channel PCM sent over HDMI to the AVR. Please list the AVR's in his budget range that qualify for this option. Please specify whether the suggested AVR has been known to degrade video signals in any way over HDMI, even in passthrough mode.


Thanks everyone for their help!