Hey, two channel talk! I'm still in two channel mode, taking my SWEEEET time before I eventually jump on the HT bandwagon. When I do, I'll do what Shinerman suggested with the $350 receiver in conjunction with my current stereo amp.
But getting back to your questions, here's my slightly twisted take on your choices:
Denon, Yamaha, HK, and the others USED to make good stereo equipment, but since that's a niche market next to HT, they all migrated their best stuff over to multi-channel, leaving only a few scraps to choose from in two channel. However, that being said, the multi-channel HT receivers aren't a whole lot more expensive today than the comparable stereo receivers were a decade ago. There are several reasons for this: Outsourcing to China, automated surface mount production, and most of all because the size of the power supplies hasn't increased to keep up with the channels.
What this means is you can buy a decent 5-channel (or 7 channel) receiver for $700 and have a very competent stereo receiver that's probably on par with a high quality stereo receiver from 10 years ago that would have costed the same (adjusted for prices then, of course). You're not actually "wasting" power on the channels you're not using, becuase the common power supply is not truly able to power all channels at once at the rated power. The rated power of receivers is ONLY for two channels - perfect! The parts you're not using are the extra output transistors and the surround processing, which are commodity electronics. It's the power supplies that are expensive, and that's what you'll use. Out of the current choices, Denon, Yamaha, JVC, and Onkyo are the most appealing to me.
So that's your inexpensive option. You're getting great quality for cheaper prices than separates because you're in the mainstream market and getting the discount of mass production. Once you move to a niche market, prices go up dramatically but with much less return. I've "specked" out some NAD, ROTEL, and ADCOM amplifiers and they're extremely pricy for not much difference in specs. Oh, sure, there may be extremely suptle differences, but whether they're audible in a double blind test is questionable - and they DON'T have the massive power reserves that separates used to have a decade ago. For the price, you can get much more power and current handling from high end HT receivers.
BTW, I was recently in a situation where I was looking at power amplifiers because I was expecting to need 250W into a 4ohm load. Most of today's separates no longer run 4 ohms, and the ones that do are SOOOOOOOOOPER pricey so I began looking into DJ amplifiers (pro audio). There are some promising brands out there, two of which don't have noisey cooling fans, but they're optimized for 4 and 2 ohm loads, so you'd have to spend more to get higher voltage needed for 8 ohms. One member did this, and reports very good sound from his Alesis amps.
That's power. Bam.
