In the receiver or externally
For me the question comes down to whether I want my receiver to be exclusively for audio or to perform audio and video. Currently, I'm leaning toward the latter and am interested in purchasing a Yamaha Rx-v2600, a pioneer elite vsx 74txvi or even a JVC 702b. The biggest drawback to any AV reciever solution, however, is that unless you're willing to go flagship you only get 2 HDMI inputs, which is clearly in adequate if you have an assortment of DVD changers, satelittle, plasma, Xbox, single disc player, PVR etc.
For me an ideal switcher would be 4 HDMI inputs, plus an assortment of component connections (forget composite and cut back on the S-video). The unit would then transcode and scale the output to 720p or 1080i with the potential for 1080p.
It would also be nice if you could find a way for the unit to be upgraded to Hdmi 1.2 and eventually 1.3 without having to throw away the unit (firmware upgrade or hardware expansion slot).
Ideal price point <$300.