At present, the only mainstream format which uses HDMI's audio pathways to do things that can't be done equally well with coaxial or optical is Blu-ray. DVD-Audio and SACD can also use HDMI's digital audio connection, but (as much as I enjoy them) they are niche formats. HD-DVD can, as well, since it supported the same audio formats as Blu-ray, but hardware support for it has been nonexistent for over a year now (Toshiba completely pulled the plug last year). For other sources that offer HDMI for audio and video, you can use optical or coaxial and lose nothing. So from an audio standpoint, I recommend that you have access to either multichannel analog or HDMI for audio when getting into Blu-ray. For other sources, you can use HDMI if your processor supports it or you can use coaxial/optical - either way, you get the same thing (PCM stereo, Dolby Digital, or DTS).

Is it better to pass a digital signal? It can have some advantages - that's typically the only way to use room correction software such as Audyssey or Trinnov, and it lets the surround processor do the bass management. The analog option isn't necessarily bad, though. For example, the 990 will still provide full bass management of the 7.1 Direct input, and using a player with a well-designed analog section can potentially rival a digital signal path. It comes down to cost. If you already have a good non-HDMI processor and don't want to upgrade it, analog makes all the sense in the world. And if you look at the 990/BDP-83 combo (as an example that offers a good analog path all the way through), you can get both the surround processor and the player for $1200 - which is less than the 997 alone will cost. There are several folks I know who already own 990's and are interested in Blu-ray, and because they don't need the added features (or don't want the added complexity that those features will likely require) I've suggested this approach to them.

For video, I recommend HDMI. It certainly has its faults (HDCP being a major part of the problem), but it also offers the best way to get HD video signals to modern displays. The 990's DVI switching will work fine with HDMI sources and HDMI displays, so if you have a couple of such sources you can still use the 990 to provide some automatic switching.