Yeah, the Onkyo 780 is most likely overkill. And to think, I only started shopping because the remote stopped working on my Kenwood [the remote is fine, the IR thing inside the receiver got disconnected; I resoldered it once, but then thought I don't want to have to do that every month or so.]
I think the main differences between the 780 and the 580 are:
* component video switching [this is worth extra to me]
* more digital audio inputs [4 versus 2]
* a bigger, powered subwoofer versus passive [the 680 is also powered]
* it supports 7.1 and 6.1 sound in addition to 5.1. Not that that's a huge deal, I don't know of anything that is 7.1 encoded, and only a few things that are 6.1.
Actually, click 'features' on the Crutchfield page and there's a nice comparison chart.
It does process DD, DPLII, DTS, DTSES, and a bunch of other stuff I've never heard of.
"Processing
•Dolby Digital EX and Dolby Pro Logic IIx
• DTS, DTS-ES Matrix/Discrete, DTS Neo:6, and DTS
96/24 processing
"
I assume that means it 'decodes' it.
That Logitech one doesn't look bad at all. I'm trying to find a manual online, especially to see the THD [my Kenwood was .7%, the Onkyo is .08%], but can't. It doesn't look like it's got exceptionally wide frequency range, but a lot of the high and low end, we can't really hear. It's THX certified which is cool. Again, you have to think of the purpose you're using it for. For a first set, for a small room, for an apartment/dorm, for videogames [primarily], it looks like that one is a solid choice. In my case, this is my main unit, it's going in my living room [12x25 feet or so], and used for tv, games, and movies.
That said, HT is dangerous--virtually anything you get [although I'd shy away from what Walmart as], will seem like night-and-day compared to just 'plain' listening. Then, of course, once you start getting comfortable with yours, and knowledgeable of what to look for and what else is out there, you realize there's always more cool tech toys to buy. I get the magazine Electronic House, and there are some incredible home theaters in there. Of course, between the electronics and the room, they cost upwards of 20-50k, which is obviously out of my range.
This is actually my third HT, not counting hooking the stereo up to the Playstation, or the Logitech 5.1 sound system hooked to my wife's computer. My first was an Emerson that came from Walmart, and I don't think it even had true Dolby Digital. I was hooking stuff up with the R/Y/W RCA jacks. It was basically a fancy Pro Logic set. Now, even that was an improvement over using just the tv's speakers, but there's always room to improve. It's weird, though--while sound is important and can really envelop you into a movie/game, it's sort of hard to compare in the home. If you are watching TV you can usually tell the difference between a crap picture, a decent picture, and a great picture, but it's harder with sound unless it's something you're quite familiar with.
Anyway, your last question--yes, running virtually any audio through a decent surround system will improve it. If it's not true DD or DTS multichannel, you can at least use Pro Logic, which makes use of your surround speakers, as do the various DSP [Digital Sound Processing, I think] modes. They also act as 'equalizers' that alter the bass/treble/etc of the sound--on mine, if I use a mode called 'Dance Hall' for regular tv, voices sound a little more tinny. If I use 'Disco" [why they called it that, I don't know] it brings the bass up a little bit and lowers the treble of the voices. I use a different DSP for different content.
If you are into DVDs, definitely hook up your dvd player to the system as well. Put in something like Star Wars or Lord of the Rings, then turn it up. It's a new experience. I've even been impressed with dialog-heavy movies; suddenly you can hear people talking or walking in the background, traffic around the characters, etc.
Be aware of what you've already got--the Logitech has one optical and one coax audio input. My DVD player, my PS2, and my cable box are all optical audio; my parents' dvd player is coax, I think. Quality wise they're both about the same, you just have to make sure you can hook up your current components.