Receiver upgrade under $500 - Suggestions anyone?

I'm a casual listener with an appreciation for DVD-A, and I enjoy watching movies in surround. My current system:
Onkyo TX SR607
Acoustic Research AR7 Speakers x 4
Acoustic Research AR4C center channel speaker
Acoustic Research S108PS Subwoofer
Panasonic DVD CP72
Acoustic Research 215PS book shelf speakers in zone 2
Samsung 58" Plasma hdtv

Problem: 1)the Onkyo will not send digitally sourced audio to zone 2 (ugh!!!). I can not live with this problem!
2)the Onkyo does not have a USB port for plugging in friend's ipods.

The Onkyo is only a few years old, but problems 1 and 2 seem insurmountable.

Any suggestions for a AV receiver under $500? I've noticed most have video upconversion. Is this really necessary or desirable? How do you feel about 'factory refurbished' electronics?

I'm new to this forum and not sure if I posted this in the correct forum category. Thanks for sharing your opinion with this casual listener.

Michael

Go for the Onkyo TX NR626, it has every thing you are looking for.

ONKYO TX-NR626 7.2-Ch Network A/V Receiver | Accessories4less

raven's suggestion looks as good as any. That Onkyo has some nice features for the price.

Thank you for your responses.