Two-channel is inferior to multi-channel, no?

If the music is mastered in proper and thoughtful multi-channel sound than it will be a superb sound reproduction vehicle. Taking your stereo Redbook CD or a vinyl LP and turning on one of your processor's DSP, multi-channel Codecs may not give you the audio results you like. But some do a pretty good job. My Onkyo TX-SR806 with THX Music Cinema employed does make regular stereo recordings sound, meh pretty good. But take a hi rez digital disc properly mixed into multi-channel sound such as those Blu-ray audio discs offered by AIX Records, any Oppo BDP-83(se) user has a sampler disc in and WOW, OH WOW, OH WOW can it sound credible and lifelike.

I have mixed feelings about this... I have been using a HT based system for about 6 years - B&K Ref 50, BAT & Sherbourn amps, Dynaudio Countours for 7 channels, Rel Studio connected both high level & line level in a Rives Audio designed room optimized 50/50 for HT and stereo listening. Recently I bought a BAT 31SE here on Agon. Hooked up my B&K system thru the BAT in HT bypass mode, but also connected my Pioneer BDP-09FD directly to the BAT. I was shocked at how wonerful some of these DVDs & Blu-rays sound in 2 Ch, admittedly better than the 7.1 set up - and it was quite easy to do A-B testing by switching inputs on the BAT. Points of reference here were Roger Waters 'In the Flesh', Killers 'Live at Royal Albert Hall', U2 'Vertigo in Chicago', G3 (Satriani, Johnson, Vai). Perhaps some other media may sound better in 7.1, but musically, the stereo listening with these aforementioned DVDs just oozes with smoothness, clarity, weight, etc.

More thoughts,

If there is only one listener sitting inside the stereo sweet spot, a stereo recorded album, (CD, LP, Tape etc.) then likely stereo is going to give you the best compromise in sound quality via recorded music. If you have multiple listeners, I find after much auditioning/testing of my system that engaging a DSP such as Dolby Digital Music, DTS Music or if you have the THX choices to each above will give a better compromise presentation for all listeners in room. I find that even DSP Stereo with Audessy eq. sounds better for all if you have multiple listeners in room.

If the disc was properly engineered in multichannel surround then in a properly setup home system it will sound superior to the stereo alternative if said disc has both to for you to choose from.

"The obvious reason, I am thinking, it is that two channels are less representative of infinity (live music) than 3, 5 or 7, etc."

7 channels of louder volume doesn't equate to better volume. I believe so often in this hobby one equates different as necessarily better. Of course, if I've invested into mass amounts of gear I'm of course having to justify that purchase so in my mind I'm convincing myself this has to be better. I'd leave better out of it. It's just different sound. A decent 2 channel rig will always sound as good as a multichannel one, but in the end what matters most is what satisfies you the listener...or the short version is, whatever floats your boat.

I have had some pretty expensive two channel systems in my past. And I definitely appreciate the refinement of what I can get from a 2 channel rig, readily. Truely, there certainly is a lot of gear out there, which can make the most of what is available from 2 channel source material, radio, cd's, vinyl, what have you. And it is likely easier to best setup 2 speakers in a room than it is many loudspeakers.
And, as for music, it's mostly definitely true that superior quantities of quality recordings can be found in the two channel format. So, on that merit alone, when considering music only, I think it's pretty difficult to argue against two channel for music. There's simply more quality content, and more gear that's designed to maximize that format. If you take 2 channel sources, and process them through a multi-channel system, you're already gunna lose something in the quality category. If you're into sound coming from all around you, and don't mind the overall refinement of the recording likely deteriorated a bit, I don't think you have much to stand on in this argument. At least, most will disagree with your position here.
When it comes to movies - and, more specifically, digital movie superiority as of late - I think it's going to fall into what's originally in the mix - multichannel. Down-conversion is your only option in this case and, as I stand with the 2 channel into multi-channel processing, I think you can't really argue against keeping things original in purity. Here, multi-channel is going to get the vote from the majority.
So, I think, if you're a music aficionado, then 2 channel setup is your weapon of choice. If movies, you're gunna favor multi-channel for what it's obviously designed for.
I really can't see anyone who's only into 2 channel sources, saying they think playing stereo into a Logic seven, or PLIIz, er what not, will walk all over a 2 channel rig for stereo sources. I just don't see it (er, hear it, rather). And, movie buffs, the same.
If at all, a hand full of die-hard 2 channel guys who like movies on their 2 channel rig as a preference, perhaps. Beyond that, the votes will all stack in favor of what I mentioned above I believe.
That's my take basically.