S/PDIF is a digital interface, so if you use it, you will bypass your soundcard's DAC and transmit the digital PCM/DD/DTS signal from your soundcard to the receiver, to be either processed or converted to an analog signal for amplification. It should sound better because normally the DACs in PC soundcards are pretty crap 16bit/48KHz ones, and sometimes are integrated to the DSP/CODEC chip, compared to most receivers DACs which are 24bit/96KHz at least, and are discrete chips. Also, the PC is a noisy environment to deal with analog signals, which are susceptible to RF inteferences, etc. So, you should get better sound using the S/PDIF.
As for receiver choices, you can actually get quite a decent receiver at budget prices nowadays. Check out the denon 1802/2802. Other brands to check out are Onkyo, Pioneer Elite and Yamaha. What exactly is your budget for the receiver?