The only thing you are missing is convenience. When you connect all the video to the receiver, you use only 1 input on the tv and thus never have to change the tv input. When you change the input on the receiver, it automatically changes the audio and video together.
The 'upconverting' is technically known as transcoding. It doesn't improve the video quality (unless the receiver uses dcdi video processing like the high end HK). It is another convenience feature - you can connect different video devices using different output formats (composite, s-video, component) but use a single component connection to the tv because the receiver will transcode composite or s-video to component video.
