My experience with several Denon/Arcam/Marantz receivers' OSD is as follows:
Component overlay is often flaky, which is why I always use a dedicated S-Video cable to my scaler (because my DVD etc. also run directly to the scaler I do not need the receiver's switching capability).
Just for viewing setup there's no pic quality issue.
Also, I found the pic jumps a few times when the overlay engages and disengages, which I found a nuisance while viewing and just changing volume.
So unless you really want the overlay I'd suggest feeding the pic directly to the TV or through some switch or scaler, not through the processor.