Ian, without going overboard on a reply, what you are asking about is really difficult because GOOD audio still requires significant amplification. A 20 year old stereo receiver really isn't a ton smaller than the Yamaha 2500 or 1500 receiver (mid-line) which is good for surround audio in a single room.
Sure, it is possible to send digital audio to multple rooms, but then that individual room really needs to be setup, amplified, and properly calibrated for surround audio.
Products like Crestron's PVID8x4
http://www.crestron.com/products/show_products.asp?type=residential&cat=1012&subcat=1052&id=1005
will allow composite, s-vid, and component video switching w/digital audio. It is not simple, and distributed audio & video with discrete control and lots of available sources is a complex concept when using the latest technology and CAT-5 instead of traditional wiring.
Amplification is not going to happen within a volume control and give you a room with 5.1 though. Amplification and digital audio decoding needs to happen inside a decent receiver. The D/A process needs chips that use the latest technology to decode the audio and then that audio can be sent to the various speakers.
Products from the likes of Crestron will allow that, but I'm not sure I would ever do it myself. To many headaches involved and one room with really good surround works for me. There are double 5.1 setup receivers now that I would consider first of all and pair it with a Crestron PAD-8 and if video was important (including HD) I would look at the PVID8x3 matrix switcher and some good multi-channel amps and in-wall/ceiling speakers. That's still very expensive, but will do it on CAT-5 and give excellent results.