Is it time to switch receivers?

I have the Yamaha DSP-A1 and someone tells me that I need something with HDMI to get true HD sound. Is it really that different? I would like to hear from those who have made the switch. TIA.
Am I upgrading or downgrading. I don't have much disposable income nowadays with a family and kids so I only have to spend what I can sell my DSP-A1 for. So far I got a $400 offer. Would I be foolish or smart to switch it to a receiver that has HDMI inputs? BTW, I'm running a B&K 200.5 amp along with my processor/receiver.
A Denon 1908 would meet your needs for around $600 new.
Does your receiver have 5.1 inputs? If your dvd player has the processing built in (like a Sharp BD20U), you can run the 5.1 output and you are good. Just run the hdmi cable to the tv for video.
I may get corrected but I'm pretty sure HDMI will NOT improve your sound. It's cabling, and improves the picture more than the sound. Adding sound is a convenience.

So long as your source has digital out (coax or optical) to connect the sound to your DSP-A1 you will get HD audio. And a $600 receiver will be a material downgrade from your yamaha.

It depends on what your source is. If you have an Oppo DV-980H, the HDMI connection can pass an uncompressed surround digital stream from DVD-A and SACD discs.
If you have a Blu-ray or HD DVD player, the HDMI connection can pass an uncompressed 7.1 data stream to your compatible pre/pro. Depending on the player and the disc's soundtrack, this datastream could be 5.1 or 7.1 channels of uncompressed PCM, Dolby TrueHD, or possibly one of the DTS schemes (I can't keep 'em straight). The SP/DIF digital connection does not have the bandwidth to pass uncompressed multichannel digital sound. HDMI does.

There are several Blu-ray and HD DVD players where the only way you can for sure get the new uncompressed soundtracks is via HDMI.
I do have a bluray via a PS3 game machine. The video portion is connected to my HDTV via HDMI and the sound is connected to my receiver via a toslink optical. I'm wondering how good is uncompressed PCM? Is it worlds apart from what i'm already hearing? I think my cabling is decent. I'm running the belden 1505F from blue jean cables and for speaker wires, I'm running monster M1's.