The SR605 is actually the lowest cost HDMI 1.3 receiver I've seen available.. (I've seen it for under $500 in B&M stores) So when he does make the move to HD DVD or BluRay he will be able to pass Dobly TrueHD or DTS-HD Master Audio directly over the HDMI, rather than using the analog 5.1 outputs from his disc player.
Edit as I was a little slow: Yeah, the SR605 will upconvert from other sources to the HDMI output, but it will downconvert 1080i signals over component to 720p when output over HDMI. Check the CNET review for more.

I picked up a Toshiba HD-A30 HD DVD player at the beginning of October, and love it. Looking back I kinda wished I just went for an A2, but I'm satisfied. Unfortunately the 2 lowest models of Toshiba HD DVD players don't have analog 5.1 outputs, so the only way to get Dolby TrueHD or DTS-HD Master Audio is over HDMI, which requires a HDMI 1.3 receiver.

If you do have a HTPC you could always get a combo drive ($299 @ newegg, but out of stock), but I hear the software is still young for Windows (especially with integrating it into a Media Center app). I haven't looked into getting it running under Linux.