would B&W work with cheap japanese recievers?

Go ahead. Your receiver will be able to drive them just fine. As a general rule, it's better to upgrade speakers first, unless you've got a truly underpowered amp that won't be able to drive the speakers you want. Yamaha's power ratings tend to be pretty honest, so I wouldn't worry about the combination you're suggesting.

We ran B&Ws with HK receivers back in the seventies and thought they were a very good match.

I would suggest you upgrade the speakers and keep the reciever. Then if you feel a need for improvement, look into buying a reasonably priced, nice two channel amp (like a used NAD for $300). You can easliy bypass the front two speaker amps in the reciever.

I once had my CDM1's with a Yamaha receiver and thought they sounded fantastic. A/B'd the Yamaha with the Arcam Alpha 10 integrated and heard very little or no difference. A Classe integrated beats them both though.

In your case, I would suggest upgrading the speakers first. Most likely you would hear an improvement since you mentioned you are running cheap speakers. You might want to upgrade the amp at a later stage though when fund permits as the 700 series truly deserve better amplification.

Go for 3 matching fronts.
It will sound awful for theater with junk as the center channel. In 5.1 or 7.1, the center gets the most work.
If you can only get Right and Left now, your next move should be the matching center.