The Oppo BDP-83 is such a player that has the 7.1 analog outs (the PS3 only has analog stereo). But with the price reduction of the PS3 the Oppo is now a more expensive option.
While "1" is a way to do it, is really is much preferred to use HDMI to provide a digital connection to a receiver which will have much more flexible processing options than any player.
I don't find it preferable to have the receiver do the decoding, as there's no way to mix in secondary audio which may be present on the Blu-ray. It is mostly for menu sound effects, which isn't a big deal to lose, but some pic-in-pic commentaries, and other special features require secondary audio mixing to be performed by the player. This can only work if the player decodes the audio to LPCM, then does the mixing before sending the result onto the receiver. But that is personal opinion. Some people want to see the TrueHD and Master Audio lights shining from the front panel.
As you stand right now, one option you have is to connect a Blu-ray player to your receiver by optical or digital coax, and send the core bitstream. While you won't get the secondary audio mixing, or the high definition codecs, you'll have a nice staring point with a Blu-ray player. I assume you have an HDTV at this point. The biggest jump in Blu-ray is the picture quality. Audio is only slightly improved, and even the "core" lossy sound is better than the DVD mixes because they can be run at the full bitrate (1.5 Mbps for DTS), which is almost never done on DVDs because it cuts in to the video quality.
I'd still say get the PS3 Slim, and use it with what you have. That was the route I took: DVD player hooked to a CRT with an older receiver, upgraded the CRT to LCD, upgraded the DVD to a PS3, upgraded the receiver to a new 7.1 unit, upgraded the LCD to a plasma.
