In order to get surround sound from your cable hookup, you need to run either a digital coaxial cable, or digital optical cable from the digital coaxial output or digital optical output of your cable box to the appropriate input of your receiver. The area, in you diagram, labeled #8 is your 3 optical inputs, while #10 is your 2 coaxial inputs. Either connection will suffice.
Once you've run the cable, you'll need to go into the Onkyo's "Initial Setup" menu and assign whichever input you use to your cable input (see page 42 of your manual).
By the way, in order to get surround sound from your DVD player you'll need to run a digital cable from from your DVD to one of the digital inputs on your receiver, and assign that input, as well.
The "down" side to running your video from your cable box to the receiver, then to the TV is, whenever you want to watch TV, you MUST turn on your receiver. The "up" side is, as you've said, you only need one video cable running to your TV, which means you can leave your TV on Video 1 all the time.
