Couple of things.....
1) Your son-in-law didn't just "GIVE" it to you? he "SOLD" it to you????? I guess he already won you guys over, and doesn't need to try anymore
2) You should connect via Optical, and "Yes" be at your limitations for 5.1 lossy audio, but still Dolby Digital etc... which is great for most (untrained ear as you say)
3) As far as upgrading, "Yes" you'd benefit from a receiver capable of the new codecs, just as you'd benefit from new speakers, and benefit from MULTIPLE other things you can do/control to improve the audio experience.... the decision becomes yours as to when the enjoyment and improvement you receive exceeds, then meets, and then begins to trail behind the Money spent to arrive at that point..... Diminishing returns
But it's your money, and your ears.... so you have to decide.......
I'm still trying to get better audio, but I have a friend with a $200 (yes, $200) HTIB that he thinks is great, and wishes for no better (although he does recognize other things sound much better)
Good luck, and welcome to the blu-ray forums!