Exact same setup. I run the component cables directly to the TV. Xbox 360 outputs at 1080p. Optical to the receiver. Assign it to GAM. At that point I just made a macro on my universal remote and never worried about it again.
For the 605, if you have a 1080p HDTV, your best bet is to take the component directly to the TV. If you go through the receiver and out via HDMI, while you're minimizing wires running to the HDTV you can't go above 720p I believe over component.
Optical is definitely an improvement over RCA/red/white cables. Any component cables for the 360 can do 1080p. Since it's a game system and not a movie player there are no content protection issues. Oh, and don't buy a goofy converter. It's completely pointless for that setup.
Hope that answers everything.
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