HT Receiver recommendation

You may also consider a used Marantz SR-18. Wonderfully musical for 2 channel AND SUPERB for home theatre. They can be had for about $600 with a little patience and bargaining skills.

Read the write-ups on the Yamaha RX V657. Good luck!

I agree with "Reubent", unless the $500. budget is absolute, I'd look for a new receiver with HDMI v.1.3, room calibration, ability to handle new audio codecs, etc. If not, you're starting off with one hand tied beyond your back as far as future upgrades of other components (Blu Ray player, advanced audio codecs, etc.) There's lots to choose from for a couple hundred bucks more.

Sure. The products with newer tech offer sonic advantages (as well as video upscaling capabilities, often) that you just wont' get with older receivers. And, because we're talking about "receivers", it's not like you're going to be getting super separates like performance in terms of dynamics, and refinement in the preamp and amp sections of the piece you likely get. So, yes, I'd be looking at, the very least, something with the Audyssey room correction, possibly video upscaling and component switching (if not HDMI), and maybe some newer HD-Dolby and DTS master decoding possibilities. But, only piece right now that does that for your price range, new is the Onkyo 605.
Denon is a no loose solid sounding product, but you'll pay a bit more to enter the arena of HD digital movie processing. Good luck