Wiring- digital vs analog - beginner help

I have a Marantz SR8200 receiver that has a shit ton of digial input and output ports on the back, including digital coax, optics, etc for all of the major components. Right now I am running my cd player, dvd player, and digital cable box through the receiver with either stereo rca cables or component cables.

The display on my receiver treats everything as "analog" output, which even I know with my rudimentary knowledge of music listening, is the only way to hear music. Except when my friend Bender comes over and he sings to me in Ones and Zeros.

At any rate, the RCA cables and component cables I am using are 15 years old, and very crappy, that I purchased from Radio Shack back in the day. I want to clean up the mess that the web of cables behind my entertainment center, and reduce the complexity of the wiring.

1) Can someone explain to me how using digital coax/optic inputs/outputs with my components would impact the sound quality of the music I listen to and movies I watch?

2) The best digital to analog converter I have is certainly going to be in my receiver, as my cd changer (Onkyo DX C330 - also 15 years old) only has analog output anyway, so how can I make sure that it is the receiver that is doing all the heavy lifting and conversion work?

3) Barring a transition to digital input/output for my other components, can you give me a low down on what makes for a higher grade analog cable hookup and recommend a low cost/high quality online provider of such cables?

My current speaker set up is 2 TotemAcoustic Mites connected directly to a Totemacoustic Storm subwoofer, for stereo listening. At some point, I may want to work out a surround sound set up when I move to a bigger apartment, and that would probably require a replacement of the sub directly to the sub output on the receiver. As right now I am basically simulating a large floor speaker set up in front of me, would I lose full range listening and imaging for music if I changed to a 5.1 set up?

Thanks.