gorfle - you really need to do some research and ask some questions. You are just uninformed on the products right now and if you are going to be spending any money on this hobby then it makes sense to understand what things are and why they perform a certain way so you can be an informed consumer.
Hi BMX: I can appreciate your enthusiasm, but remember, this isn't a hobby for me, though I am getting more interested in the course of this conversation. Remember - all I set out to do was find a stereo that had more audio inputs than the old college-dorm Aiwa Walmart unit I had so I could hook up an external DVD player and a MediaLounge player in addition to the inputs from the TV. Now that everything is up and working with this new receiver, I'm not likely to be buying more A/V stuff for a while, except maybe that composite-to-S-Video converter you mentioned.
Also, in DVD mode, set it for 'auto' surround detection.
Supposedly, all digital inputs are automatically detected for how they are supposed to play. Both the DVD and MediaLounge are hooked up with digital audio.
Surround does not mean that every speaker plays audio at the same time.
LOL, I did at least know that much.

I've just never owned anything that could actually play surround sound. I've just had an old 27" RCA TV with the audio dumped into and old Aiwa desktop stereo (you know, one of those things with the combo CD, dual tape deck, and radio?), and since it didn't have enough jacks to drive 4 speakers I spliced the wires so that the left output drove both the front and back left, while the right drove both the front and back right. Surround or no, it sounded better than just the tinny-sounding speakers on the TV. I'll certainly look into how to turn off the un-hooked-up speakers on my new receiver, though.
While on the subject of that old Aiwa unit, I notice that it had a a digital audio out for the CD. My new unit specifically says it does not, and you'll have to use analog out for recording. I'm guessing this is part of the anti-copying movement going on? Do higher-end units provide the ability to record digital out?
As for your video connundrum, if you are aware of the need to switch your display between s-video and composite video, then you can simply hook up the composite video cable from the receiver and do the switching manually.
Swithing the TV between S-Video and Composite is tedious. You have to go into the setup menu, go into the audio menu, and then the aux input menu, and then finally toggle between S-Video and Composite. I think the easiest thing is to just convert the one composite input, from the old VCR, to S-Video, using one of those converters you showed me, and be done with it.
You may also consider that you can add the composite video cable to your DVD player, and leave your TV on composite most of the time, but then switch it to s-video when you are around watching a DVD for slightly improved quality. Keep in mind that s-video is just a bit better that composite, and component video is better still, and everything you are dealing with right now is a long way from HDTV - and your receiver isn't equipped to handle HDTV at all.
Right - I considered that from the start, since that was the way the DVD was originally hooked up to the TV, and as all of my video devices (DVD, VCR, MediaLounge) have composite outputs. It would have been cheaper, too, since I already had all the necessary cables, but I had to go buy some more S-Video cables. But, since everything but the old VCR supported S-Video, and I had heard S-Video was better than composite, I decided to go S-Video.
This is a Denon 2807 receiver, it is what many woudl consider a pretty standard mid-level receiver. Not great, but a long way from the sub $300 price point entry level stuff. Mid-level pretty much runs from about $500 to about $1,500 or so. And while what you got wasn't the 'cheapest' that Best Buy had, it doesn't offer anything more really than what the chepest has except a few added inputs.
And that's why I chose it - it wasn't much more expensive than the lower-wattage unit plus it had a few more inputs. $500 was out of my price range. Cool looking back panel on that Denon, though.