You'll be much better off with a new receiver than a DVD player with built in decoding. A receiver will likely have more flexible bass management choices to more accurately match the capability of your speakers. A current model receiver will also likely decode DTS which is a lesser used but superior 5.1 format to DD. Dolby Pro Logic II is also trickling down to the cheaper receivers and it is supposed to do a credible job of extracting 5.1 channels out of a stereo source. I have not heard DPL II myself but I have heard the high end predeccesor developed by the same guy (Jim Fosgate) and it was impressive. And, most importantly, a receiver allows you to decode other digital sources like DSS, digital cable, DTS CDs, XBox, computer or a future DVD player you might buy.

If you can somehow find a way to scrape the cash together I'd encourage you to get a receiver that has multiple optical and coax digital inputs and that will switch s-video (maybe even component). Depending on your equipment, these may seem like unnecessary luxuries now but they will save you from having to buy another receiver or cascading switchboxes in the future as you acquire more/better source equipment. As you've discovered, it's a pain in the ass when your central hub (the receiver) doesn't have the inputs or capabilities you want. You end up spending more money for a half ass solution that requires multiple switchboxes and is cumbersome to operate.

Good luck.

-Dylan