For the audio part of things you'll want to use a Digital Coax cable, not a Digital Optical cable if possible. Exceptions being if you've got AT&T Glass Digital connectors. But the AT&T connection is very, very rare (and terribly expensive). And a good quality Digital Coax cable WILL make a hell of a big difference in your sound quality. I'd suggest a Digital from Bolder Cables. I'm sure the Bolder Digital with the Copper Eichmann Bullets is great, but I've had Wayne build all of mine with Silver Eichmann Bullets & a cryo treatment.
As far as the video goes (DVD's only), yes Component is generally better than S. And S is better than Composite. If you've only got one source you'll be using Component Video with then run it straight to your display. Most processors/receivers don't have a problem with Component Video switching if you need to use more than one source on Component.
As far as going 6.1, I'll say this. Don't. Go for either 5.1 or 7.1. One rear center directly behind your head is almost impossible to hear. I'd also say don't bother with specifically running more than a 5.1 setup anyways. The amount of material available in DD EX/DTS ES is very, very small. And of the available material less than 20% of it is actually mixed to properly take advantage of it. I've been running 7.2 for over 2 years now & have watched almost everything that's been released in EX/ES (only missed a couple). It's not worth the $ to buy more amplification, speakers, IC's, & speaker wire. I also wouldn't buy a new processor or receiver for the purpose of running EX/ES. If you do need to buy a new processor or receiver then don't count out ones that are capable of running EX/ES as maybe someday there might be enough software to justify the added cost of everything else.
But then again I told myself that 2 years ago. And the amount of EX/ES mixed software still isn't increasing at much more than a snails pace.
