The 507 does decode the new formats, while the 506 (last years model) does not. Then the big jump in codecs to the 607 is the theoretical ability to use 9.1 (2 extra speakers located above the L/R fronts), Pllz I think its called?

M60x2, VP150, M22x2
Sennheiser HD-595
Onkyo TX-SR507, PS3 (40gb)