So you "KNOW" that a stereo receiver is going to be "WAY" better than your Yamaha, despite the fact that you're listening to compressed music files with the source being the headphone jack of your iPod, huh? You "KNOW" that? Despite the facts?
And you've "decided" that your Yamaha is "meant" for 5.1 and, apparently, can't possibly sound good when playing in stereo? You've "decided" that? Despite the facts?
Well then what do you need us for? You just "KNOW" things and "decide" things, regardless of whether or not they're true! I'd sure love to have that power...
To answer the question posed in your topic headline: No, that would not be a BIG upgrade, in my opinion.
At the very least, start using the digital USB output of your iPod. If your receiver cannot play files directly through the USB interface, I'm sure there's a dock from Yamaha that will allow you to plug your iPod into that dock like a USB cradle so you can stop using the headphone jack and the iPod's less-than-stellar internal DAC and amplifier.
Better than that, start listening to some actual music files in a non-compressed or losslessly compressed format.
Right now, the limiting factor in your setup is your source. For the love of God, stop using your Xbox! Even the new, slim ones are loud as all getout just from their fan.
Once you're playing decent music files from a decent source, MAYBE you could consider upgrading your receiver. But simply going to an $800 stereo receiver isn't going to get you anything. Not now, and not even if you upgrade your source. Your Yamaha ain't the problem. But you've already "decided" otherwise, so who knows if my answer will even be worth a damn...