Toby, I use an Onkyo 706 with a 5T/5C/4B/8D 5.1 setup, and the 706 has more than enough power to drive those speakers in my room (17x14), I don't think you can go wrong between the 706 and 806, the 806 will obviously give you more head room (not sure how large you said your room was).

As for the blue artifacts ("jaggies"), I have not experienced any.  I run my Sony BDP-S350 through the 706, HDMI both in and out, no problems at all.  My only other source is the Comcast HD dvr box, also input with HDMI.  I was worried at first buying the Onkyo after reading all the stories about overheating and upconversion issues, but I am convinced now that those problems are the results of people buying refurb units or just being unlucku and getting a rare malfunctioning unit.  Just give the unit a little room to breath and you should be fine.  Mine only has like 2-3 inches clearance up top, which I think is pretty tight, and it still never gets more than what I would consider to be "very warm".

On the other hand I rarely run my unit for extended periods at high volume, so take that into consideration.