Sort of a tricky question for people who really know their stuff.

[stobbart]

I know this must have been discussed before but my searches come up with nothing. Let me explain:

If you look at my HT pics you can see that I have spent more money on Criterion DVD's then my entire HT, well as some of you may know (by my speaker topic posts) I am doing a total upgrade. New tv, speakers (cables and interconnects) and possibly a new receiver (people seem to be all over the board on the ability of my receiver) and hell even a couch, any ways back on topic. I will stick with a 2 channel set up because basically I cant fit a 5.1 in my room unless it is some htib deal and I am not doing that. I want to get good, quality equipment (for my budget). I am using a ps3 and was wondering if the audio settings for this hooked up with my old Hitachi SR-2004receiver will produce a good HT experience?

Since the receiver does not use hdmi I will most likly end up doing audio out from the new tv I get (either Pioneer Kuro or Panasonic TC-P54V10). So all of this put together, will the audio experience from this setup even benefit from blu-ray or will it still be limited to DVD audio quality?

I dont really know if that makes sense, I am completly new to this and may have made this more confusing then it is, sorry if this is the case. Basically I'm just wondering if when I watch blu-rays using audio out (unless someone has a better idea on how to hook this up to my receiver) hooked up to the Hitachi, will sound experience be better then trying to fit a 5.1 in my room? Since it is small 12x12, I read that a 2 channel will sound a lot better in small rooms with good stuff then medicore 5.1 in a small room.

Or will getting a new receiver that can accept a HDMI cable and running this to 2 channels be better?