Re: Which way is better?
if you use you digital (coax or optical) for your audio then you will not be able to listen to any of the new HD audio codec.
While there is logic that you don't want the video signal to go thru an extra step for HDMI it does not matter that much. For your SD signals many receivers will do video scaling for you. Then it becomes a question whether you DVD/Blu-ray player is better or your processor is better. For 1080p signals I have not encountered any processors that can do any scaling or video processing to that signal.
The short answer is use HDMI for audio and video.