Should I upgrade home theatre to one with HDMI?

You do not mention te primary purpose for the HT system. Movies, Music, TV, Gaming or all of the above?

Here are my thoughts. Everyone who mentioned that you are missing out on the new lossless formats, namely Dolby True HD and DTS Master are correct. These audio formats truly sound amazing, some of the best recordings I have heard in over 35 years in this hobby. And I am not talking movies in 5.1 or 7.1 lossless (although they are great) - I am talking about music, particularly Blu-ray concerts that sound simply spectacular. Without HDMI 1.3 or higher into a processor or AVR that can decode it, you are missing out. Optical or digital coax cannot carry these signals. They can only do lossy formats which are the old Dolby Digital and DTS.

Now if all you are concerned about is TV or even movies (Blu-ray or DVD), IMHO the old lossy formats are just fine. TV and DVD can only do the old lossy codecs anyway. If you have a Blu-ray player, you still have the lossy soundtrack that sounds just fine for a movie. So running an optical conmnection between player or cable box and your current 5.1 Denon processor is all you need. But if you want music and want to take advantage of the new lossless formats, get an HDMI equipped processor or AVR. In fact an AVR with PRE-OUTS connected into your 5 channel Denon amp would be the most cost effective solution. Just make sure the AVR has PRE-OUTS. They all have room correction, some proprietary like Pioneer MCACC and some licensed like Audyssey that is found on Denon and Marantz products. They all do a good job. Good luck.

You can use optical or coaxial from a BD or DVD player but as has been noted, you will not have the newer higher resolution audio formats not present in your Denon. I have had a similar dilema, running HDMI to my plasma, but making compromises with older legacy codecs via optical connection or multichannel analog. If you use analog out from the player, you need the multichannel analog inputs on your prepro/receiver. You also rely on the bass management of the player unless you have some type of analog bass management device, like the older Outlaw ICBM. I have done this with an Integra Research 7.1, but it's a cable jungle from the BD player to the ICBM and then to the IR. I also have dual subs with unequal distance from listening area. I have decided to upgrade my prepro, simplify my cabling, and get a unit (Marantz AV8801) with Audyssey XT32 and ability to calibrate for dual subs. You could stay pat and still have pleasurable listening, and I have been doing that for some time now. I watched The Dark Knight Rises last night on my current legacy system and the audio was great. You also have choices of many full featured, high quality performing units available now. Good luck.

Thanks for the response guys. All helpful. Happy New Year

Not to pile on, but my Rotel 1056 receiver has me in the same boat, no HDMI inputs/outputs.

I've done what others have suggested and used it for some time now.

TV-Directv box hdmi to tv, tv volume set to zero. Digital audio out of Directv box to receiver.

DVD-Oppo 95 hdmi to tv, 5.1 analog direct to receiver which lets the Oppo deal with the new codecs and the receiver sends the signal unmolested to the amp section.

CD-Oppo 95 2-channel analog out to cd analog input on the receiver. Lets the nice DACs in the Oppo handle the signal.

Hope that helps.

Just wanted to emphasize a point of clarification for anyone not completely up to speed on this format and connection stuff.. ....
Any of the TV, Cable, Fios or Sat boxes will not use the high resolution uncompressed audio that you hear about. (They cleverly make little mention of these specs in the cable marketing and high res audio won't be happening anytime soon) So, the hdmi cable input avail is just an issue of wiring convenience for audio (and a flim flam excuse to sell you new gear) .... The old fashion fiber or coax cable is all you need for Dolby digital 5.1 TV as many of the posters recommend.

Now.... the high res audio formats on Blue Ray discs are fantastic sounding and a good reason to spin discs and hook up the gear with hdmi or 7 channels of analog cables (pick your favorite Dac/pre amp and room management technique configuration)

Admnranger have you chosen the DACS of the Oppo over the Room management and DACS of your Rotel by ear?