It is not an absolute necessity I suppose. But I would not buy a receiver these days without HDMI inputs and conversion capabilities.

I would run all video and audio into your receiver, and then run the least amount of video cable from your receiver to your tv. (if you use HDMI and everything is converted to the hdmi out in the receiver then you only need one cable to go from the tv to the receiver.)

If you connect the video directly to the tv and the audio directly to the receiver then you will have to change the input on the tv, and then change the input on the receiver to the right audio input to match the video you are watching.... kind of a pain.

IF everything goes through the receiver then you can have your tv set on the same input at all times, and just switch the input on the receiver to switch sources... much more conveinent.

Check out this review at audioholics for a $350 denon receiver
http://www.audioholics.com/reviews/receivers/denon-avr-588

You can probably get the first one I mentioned from 6ave.com for cheaper than the $499 price shown on denon's website.

I got a denon 3808 which is MSRP $1599+tax for $1098 from 6ave.

Also, if you are using an HDMI connection there is no need for a separate digital audio connection since HDMI includes both audio and video

-David