Yes the difference between composite and S-video is big. But for even TVs without S-video and only with composite inputs, DVD is a big improvement, if only for the convenience factor.
Look for a TV with multiple S-video inputs. I have 2 component inputs on my TV, along with 2 S-video and already I feel limited. The more inputs the better.
As for component, the difference between S-video and component is not huge if you use an interlaced source. However, you cannot use S-video for progressive sources. I have a progressive TV and a progressive DVD player. The difference in quality of progressive vs. interlaced is pretty significant, although less so on my 34" widescreen TV which is comparatively small. The point is somewhat moot though, since a TV without component won't be compatible with progressive anyway. (But a TV with component doesn't mean it supports progressive.)
By the way, S-video for SVHS is not a lost cause. Many camcorders use that format, and composite is still worse than S-video for that. For me, I have a Macrovision free DVD player and if I ever get the urge to record something to SVHS, I use S-video, and the result will be superior than if I use composite, although I don't really do that.