Cheap receiver + power amp or expensive receiver?

A friend and I had a pretty interesting discussion yesterday that we couldn't resolve.
Lets say someone had a budget of $800-1000 or so to buy either a decent receiver like the Yamaha RX-V1400 or Denon 3803 or something, or buy a small but feature loaded receiver like the RX-V640 and a decent power amp with the money saved? The person would use the equipment for 50% music, 50% HT.
The argument in favor of the dedicated power amp is better 2-channel music quality.
The argue against was that 5.1 or higher playback will suffer. I suggested that the sound quality difference in DVD's between these 2 yamaha's probably isn't quite as much as the performance gain in 2 channel stereo.

Anyone else have any comments?

I would think that for that amount of money one would be better off just buying a HT reciever. I don't think that having a seperate 2channel amp would sound that much better because for that kind of money you would have to compromise on either the amp or the HT reciever.