Sub, I did a little research and found out a few things:
- Some say the Onkyo 606 degrades video quality when upconverting, enough to notice.
- Based on what I've read TOSlink doesn't have enough bandwidth for the HD audio formats. So even though that the new Panasonic BD35K decodes the HD audio formats in Blu-Ray you still need a receiver which processes both audio and video over HDMI to actual get those formats in full HD 7.1. If you have such a receiver I believe it doesn't actually need to support those HD audio formats since it's receiving the audio already decoded by the BD35K over HDMI.
- Unfortunately for me my Onkyo SR505 only passes video over HDMI (discarding the audio) so I'm limited to standard DD5.1 and DTS formats regardless of where the decoding takes place because my audio always much travel over TOSlink.