The issue is not just about SQ, although I believe it is an issue. As I have stated often, the whole concept of a receiver is a terrible idea. The more complex the processing and the more amps that are shoe horned into one case, the worse the idea becomes. OK you can use preouts. However you have multiple amps wasting electricity pulling significant quiescent current and therefore power generating heat. Not good.
So the end result of receivers is more heat production with definite long term reliability consequences.
The heat generation is significant. With separates the pre/processor will run very cool, newer ones cooler than older ones. It also allows you to purchase solid reliable long pasting power amplification.
Then we come to the issue of obsolescence. I'm on my fourth generation of pre/pro right now after 13 years, but I still have my same power amps.
In installation a lot of attention has to be paid to air circulation, including spacing and added fans.
I have recently installed a couple of systems where pre/pros and power amps are in relatively confined quarters.
Here is a new in wall system 3.1 with passive TL sub.
Total amp power is 1000 watts all channels driven.
Now I have placed four fans in the equipment cases under thermostatic control of four judiciously placed temp. probes. Temperature is displayed in the control panel.
The temperature of all the spaces is seldom more than 2 degrees C above the room ambient temperature. The largest rise I have seen is 4 C above ambient when pushing it hard. None of the fans have yet come on.
Now no receiver would deliver that kind of robust power into four ohm loads (All are 4 ohm). Even if working at lower power, I'm certain those spaces would be much above ambient, and the fans would be running a good deal of the time, if not all of the time. I'm not even sure that design/layout using a receiver would even be sensible or practical. This issue has to have a bearing on reliability and replacement rate. Every solid sate device has a time temperature curve. The higher the operating temperature the shorter the life of the components will be.
By the way the other relatively confined system has had the same result and the fans are yet to come on.
The downside is economic. However if people were sensible and opted for separates then the cost of a pre/pro would obviously be lower than receivers. Owners would then invest in much longer lived power amps. So costs over time I believe would be substantially less.
So in essence this lower quality receiver option is driven by consumer behavior, which I believe to be fundamentally misguided.
These are just some of the reasons I do not purchase or use receivers and never will.