I'm using a S Video cable and the quality is good, clear picture. I hooked a HDMI cable up to see if there was any difference in the picture and I couldn't notice any. Only have 2 HDMI inputs on the TV and I use them for Direct TV receiver and the other one for the DVD player. I would have to get a switch, my audio video receiver doesn't have any HDMI inputs. Using the HDMI cable the audio would only come out of the TV speakers, using the S Video cable the audio comes out all 5 speakers.
Both the composite and S-Video output are very, very good on the Roku - about as good as it gets for standard def content. Depending on the size of your screen, the difference may be more or less noticeable, but you should notice a difference. That said, even the composite quality is very watchable. I, too, currently need a switch and am so lazy that I've got mine on composite most of the time and it bothers me not at all. Of course, I'm watching on a 32 inch HDTV, so it's not as big a deal. On a larger screen, I'm sure I'd be less satisfied.
Now that I have the HD update, I will be switching to component -- but I'm in no big hurry, given the shortage of good HD content currently. Because I know that once I switch, I'll be jonesing for HD more and more...and now I'm quite content with SD, so why stir things up?
Besides, there should be some great sales on HD sets this spring!