The 987 is the big box equivalent to the 3807 minus a few connections on the back, if I remember right, so the quality is there. You are correct in your guess that the 987 hooked up via coax or optical from the DVD will give you the full surround spectrum of DD and DTS. You could get the 2308 for about the same price as the 987, I believe, and it will do HDMI1.3a and the newer HDaudio formats, to hopefully future proof for a couple of years.
So far as JohnK coming around, he will most likely suggest an Onkyo product that will do everything you want as well and just might be a little cheaper than the 987. rs.
