Confused about 7.1 Formats

I'm not familiar with the particular equipment you describe nor whether there actually is a 7.1 format encoding / decoding scheme. I have a Lexicon processor that uses proprietary signal processing to extract far right and left information that is sent to two additional speakers. Personally, I wouldn't do HT without it, it makes a huge difference.

The 5.1 are all discrete channels. The other higher versions start matrixing the information out of those original. A center rear matrix's the info from the two rears (unless the center rear is actually being recorded as a discrete channel-that I don't know). And 7.1 with two additional surrounds (but no center rear) matrix's the sound from the rears also. I think. Dolby Pro-Logic was only 2 discrete channels with the center and surround matrixed out of those. I think I've seen 8.1 somewhere.

Any new speakers (i.e. channels of info whether or not discrete or matrixed) will need more amps. Upstream at the heart of things I'm not sure on the processer and dvd player compatabilities. But you always have the option of not using the additional channels.

7.1 means several things

if you are a neanderthal and are wowed easily it means "more is better"

if you are george lucas it means "big moula"

if you are a typical audiofile that can set up something right in two channel it means "why waste my time"

Audiotomb, that's great! Jplenhart, Anthem is a fine a/v processor/switch and will very likely allow you to use a 5.1 format or even a 3.1 format if you don't want rear speakers. The WAF goes way down as you increase the number of speakers. Ask the dealer or check out the website to confirm the optional set-ups for the Anthem. Think of al the DVD's you could buy or rent with the savings in speaker and amp costs! Have fun!
P.S. Personally, I like at least a center channel while watching a movie -- but I'm unable to get the appropriate soundstage since my TV is between my speakers. A lot of your final setup and choice to go to 3, 5 or 7 speakers/amps(plus subwoofer) depends on your room size and ability to choose function over form.