Recommendation for a New HT AVR?

I would keep the B&K for now and invest in a player with internal decoding and multi-channel analog outs. A quality pre-amp and amp like what's in your B&K will go a very long way in the overall sound of your system.

If you look at the amount of movie software available that is actually mixed in 7.1 discreet it's very minimal. Heck, the Dolby Digital EX and DTS-ES 6.1 formats have been out for years and there's still only a small percentage of movie soundtracks that actually use it. Even many Blu-ray titles still use regular Dolby Digital! Remember: Dolby True-HD and DTS-master audio are just nice options, NOT a requirement of the new Blu-ray format.

If you have your surrounds placed correctly and calibrated properly in your system I should think 5.1 will still sound great with Blu-Ray. Just my $.02 :-)

My experience owning and selling lots of audio/video equip since the early 90's is that you, of course, can always wait. That's the nice thing. If it were my money, I'd be looking to do an av-pre/amp combo, and trying to get it into that price catagory (patience will pay off if are a prudent/patient buyer...it all apears, eventually).
One thing I've found as pretty tried and true over the years, and personally having owned and sold lots of av pre's, multi and 2 channel amp combo's, as well as av receivers, is that separates offers some very strong performance advantages over an av receiver. I think this should be at least considered.
That said, the Emotiva UMC-1 pre-pro "should" be coming out here soon (although I have concern with them continuing to push the date of release back), being released at $699 - touting all the current audio/video goodies, mostly. Combing something like this with even a used 5/6/7 ch multi-channel amp on the used market - to be had as low as $300-$500 price range, if you shop a while - and you'll have a dynamite potential combo of av performance from a separates based system! It's a consideration, anyway.
Another route is to look at some otherwise good AV receivers in the $600-700 price range, with all the current tech's, and then add an outboard amp - to at least the front mains/center! Something from Harmon kardon or Denon in this range should do you well enough, mated with good amplification for the fronts (at least) - allowing the backs/sides to be run from the receiver - should yield you at least as good to better results sonically, if not video wise (with video upscaling potentially) as an upgrade.
Basically, I put no solid weight regarding perforamance of when it comes to audio quality from ANY receiver unit, compared to separates! But that's my experience.
I would say that, easily, to get the kind of performance you like out of your current B&k, you'll have to spend lots more on a current receiver offering, and pay a premium. I think you can get better, yes, by doing the separates.
Never-the-less, I say never get married to any piece of audio/video equipment! It's all for sale eventually, rarely (if ever) holds it's value over time, and is often replaced down the pike with the newest latest advancement - for cheaper!
Good luck

Thank you everyone for your input. I've got some things to check out on my current Blu-ray player to see if I can get any more performance out of it. If not, I think I'll go the Blu-ray player upgrade path to one that has the 7.1 analog outputs. It's the least expensive option and makes the most sense given John's point about most movies are still using 5.1 after all these years.

My speakers are calibrated using the Avia disk. They are placed as good as my room architecture and my WAF (in this case it's me) will allow.

The Blu-ray player that I just got was a freebie that came with the purchase of the big-bucks TV. I think I'll sell it and use the proceeds to buy the upgraded model. This way I keep my AVR 507 (which I love) and get the use of more of my B&W speakers.

The $1K Integra AVR is a very nice piece. I'm not really picky about the movie room (my wife's domain) but I recently installed this unit and can report that -IMHO- Audyssey EQ alone justifies the price tag. As always, YMMV.

Marty

I really like my onkyo 906. I use it with a 7.1 sonus faber setup and it sounds great. No problems powering them too earbleeding levels without distorting a bit. As far as hdmi, not only is it convenient to just hook up one wire but the real reason to get it is the new surround sound formats like dolby true hd and dts hd master. The sound is like sacd compared to a cd and most of these use all of the channels in a 7.1 setup.