I am totally not familiar with the pioneer ... but here are my thoughts ...
1) upconversion: this is supposed to minimize the number of cables going to your television. let's say you have a game console that uses composite video in, a player that uses S-video in, a DVD player that uses component cables (red, green, blue). you only need to use one set of video cables going to the TV i.e. component cables. otherwise, you need to wire s-video, composite and component and then switch the tv from video 1, video 2, etc.
2) no, you won't notice the difference
3) yes it does
4) the 659 has automatic configuration (yes, you are considering the 559 - I'll get to my point in awhile.) not sure about the 559
5) my experience is with yamaha, and they havent let me down yet
my point: try to get the rx-v659 or the equivalent HTR unit because:
1) it has pre-outs - you're gonna need this IF in the future you buy an external amplifier
2) it's 7.1