1.) If I had an entry level Yamaha receiver that supported upconversion, along with a fairly high end tv (Samsung D7000), I may actually receive a better picture by not utilizing the receiver's upconversion and relying solely on the tv. Would that be a fair assumption?
Remember the two types of 'upconversion'.
What you are asking is whether the TV or receiver will do the better job of converting a lower resolution to a higher resolution. My money is on the TV, but you can try it with the receiver doing the conversion and see if you notice any difference.
2.) If the receiver did not upconvert, I wouldn't even be able to run the XBOX via component to the receiver and then only have the receiver connected to the tv via hdmi?
This type of upconversion is converting signal formats - component to HDMI. If your receiver can do it, then you can use 1 single HDMI from receiver to TV while having the XBox connected to the receiver by component video cables.
If the receiver cannot do that upconversion, then you have to
also connect the receiver to the TV by component video cables. When you select the xbox input on the receiver, you also have to change the input on the TV to the component video input (and likewise when you switch back to a component connected via HDMI to the receiver, you have to switch the TV back to its HDMI input).
Having a receiver that can do the signal format conversion for you simplifies things by allowing you to have only 1 HDMI cable from the receiver to the TV and you never have to change the input on the TV.