will there be a collapse in processor prices

Some companies (like Anthem) offer an HDMI upgrade on their pre/pro's (although at the moment only to 1.2), that would allow their equipment to remain competitive (for a price.)

On the other hand many people send HDMI directly to their display and use coax or toslink to the pre/pro for audio, to them HDMI may not be important.

What you say may become true if and when the new audio formats (like Dolby TrueHD) become more prevalent and the only way to get them is with HDMI. This may not be a good thing but we probably don't have a choice.

HDMI is necessary for some DVD players to pass a HD-DVD sound signal. The new Toshiba HD players can only pass this via decoded PCM data through HDMI. If I used my HD-A1's optical output HD-DVD audio would not be possible.
The Sony PlayStation 3 passes SACD already decoded through HDMI using PCM.
IMHO it would be a waste to spend money on any processor that doesn't support HDMI 1.2 minimum.
I purchased a new Pioneer Elite receiver and use an external amp. This combination is really nice. Most of the new $800+ receivers have HDMI, upsample video and have preamp out puts.

12-17-07: Elizabeth
Recently, at a local retailer, a $4,500. Farouja type processor was on sale used for $250.
That means it is eclipsed totally. Usless junk in a current system.

That's funny that you mention that. Someone I know in the biz just tested the new Onkyo AVR with HQV processing, and said to me "Damn, I'm glad I unloaded all my Farojda before this thing showed up!"

Video compresses in price so quickly, that you have to really be a glutton for punishment to chase the bleeding edge of performance. I just reviewed the $500 Home Theatre Scaler Plus from Gefen for HomeToys.com, and it's shockingly good for what it costs, and compares very well to scalers like the DVDO units, but for a lot less. I wouldn't want to be sitting on too much scaler inventory, that's for sure.

I am still of the opinion that for video DVI beats HDMI anyday. It is just that HDMI is going big time into audio, especially Dolby.

Yes, don't buy new unless it has HDMI. Anthem is good as they try to future-proof as best as possible.