Need help with 5.1

This month I want to buy a 5.1 surround sound system. I'm thinking of a "home theater in a box" solution since my budget will top at $500 CAD. Can someone please explain to me the best way to hook up my PS3, Xbox 360, and my HD terminal to the receiver? I don't fully understand how it works; my thinking is that I can possibly hook up my HDTV to the receiver via the optical out on the back of my TV. If there is a better way please teach me. My goal is to have full surround sound with all 3 of my devices. Thanks everyone.

Here is what I believe to be the best HTiB available, especially considering your budget. http://www.accessories4less.com/make-a-store/item/ONKHTS6100/Onkyo/HT-S6100-7.1-Channel-Receiver/-Speaker-Package-BLACK/1.html

You would connect all of your devices to the receiver then connect the receiver to your TV with 1 HDMI cable.

In the way you described, you wouldn't get the benefit of audio from the receiver from anything but from the TV's tuner and you would be limited to stereo.

Hope this helps...

Oh, so your saying connect all 3 devices to the HDMI inputs on the receiver and output it to my TV via HDMI. Do you think it would be better to hook up the xbox 360 and the HD terminal to the HDMI inputs on the receiver and then use optical from my ps3? Because I heard optical is better, and my ps3 is what I'll use for bluray.

Oh, so your saying connect all 3 devices to the HDMI inputs on the receiver and output it to my TV via HDMI. Do you think it would be better to hook up the xbox 360 and the HD terminal to the HDMI inputs on the receiver and then use optical from my ps3? Because I heard optical is better, and my ps3 is what I'll use for bluray.Actually, the opposite is true. Optical cannot carry the new, high resolution audio codecs such as TrueHD and dts-HD Master Audio that are used on Blu-ray. Optical is also limited to two channels of PCM while HDMI can transmit multichannel PCM soundtracks. When it comes to legacy formats such as DD 5.1 and DTS and stereo PCM, optical and HDMI are the same.

Okay, and if I use HDMI to the receiver how will I switch between inputs? Will I lose picture quality if I pass it through the receiver?

Okay, and if I use HDMI to the receiver how will I switch between inputs? You would use the receivers remote control. Will I lose picture quality if I pass it through the receiver? No, absolutely not.

Hope this helps.

Okay, thanks for the help "Loves2Watch". The Onkyo system you showed me looks great but that's in America and I'm in Canada. Over here I see it for around 800 dollars and I'm sure it's worth the price but I can't afford that.

So basically I need to find a 5.1 system with a receiver that has at least 3 HDMI inputs that use "Repeater" type switching, for under $500 CAD. Do you think that's possible? Once again I don't need more than a 5.1 system. Also, am I correct in that I should go for a receiver with "Repeater" type switching? I want the best audio and video for all 3 of my HD devices.