Speaking as someone who has a rather large room, I'm very happy that my receiver has PL IIx. I cannot recall ever hearing one example where a 2-channel source was processed and it sounded "worse" than PL or 2-channel. In my case it creates a somewhat pleasant surround experience. And it does a waaaaaaaay better job that Pro-Logic ever did.

As for the benefits of 7.1, I always recommend people get 5.1 done right and done reasonably well first, but again, I have about 10 feet behind my head in my room, and those 2 rear speakers sure add a lot towards creating a complete surround environment. This was made incredibly obvious to me when I sold off a pair of surrounds during an upgrade and went back to 5.1 for a brief period. Again, even applying the processing to a 5.1 track is almost always an improvement. Sometimes it makes little difference, but I've never encountered an example where it made it worse. I have to manually engage that every time I setup a DVD, and I'm always fiddling around with quick a/b comparisons. In my case it was money well spent.

As GM said, in a smaller room where you're positioned much closer to the rear wall, I don't think you'd benefit much, and in fact could make things worse.