I would recommend the
Yamaha RX-V395. List price is around $250, but I am positive that you can find it cheaper at one or more online retailer. For the amount you would pay, this is an excellent reciever. Some of the key features are as follows:
5-CHANNEL HOME THEATER RECEIVER WITH DOLBY PRO LOGIC AND CINEMA DSP*The RX-V395 is a 5-channel receiver providing superb Pro Logic performance and processing and Yamaha's Digital Sound Field Processing, and Cinema DSP. DISCRETE 6-CHANNEL LINE INPUT*High quality performance today and ready for tomorrow. The RX-V395 can easily accept the decoded output from any 5.1 channel surround system, whether it's Dolby Digital, DTS, MPEG-2, DVD Audio, or a system not yet developed.
The only drawback I see is the lack of an optical output. Given your budget, you have a lot of options. As someone suggested,
audioreview is an excellent place to start. For this particular receiver user reviews can be found
here