The HDMI 1.1 will only pass throrugh video and not audio. The HDMI 1.3 1.3a, 1.3b will process audio and you will not need a separate connection for audio. The less expensive AVRs will only provide HDMI 1.1 and you will need to make separate connections for you audio.
That is mostly incorrect.
HDMI 1.0 receivers with repeating architecture can process 7.1 LPCM from HDMI.
HDMI 1.1 adds DVD audio (MLP lossless)
HDMI 1.2 repeating architecture adds DSD support (not all HDMI 1.2 repeating receivers can do this, but it's part of the specification of HDMI 1.2)
HDMI 1.3 adds bitstreaming of HD audio formats available on Blu-ray (Dolby TrueHD, Dolby Digital Plus, and DTS-HD.
(note: A Blu-ray player or PS3 can decode these formats internally and convert them to uncompressed multichannel linear PCM which is every bit as good as bitstreaming the HD audio from the player. It's actually prefered to have the Blu-ray player handle decoding the HD audio and convert it to PCM for output over HDMI to a capable receiver.)
A few pointers to get you in the right direction, look for receivers that say they have HDMI repeater, HDMI audio processing, or some other form. Receivers that say "HDMI pass-thru" or "HDMI switching" won't be able to decode audio from any HDMI source (satellite, DVD player, Blu-ray).
For more info on the differences between HDMI versions, look
here.
