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You will definitely notice an increase in picture quality moving from S-Video to component. I guess the question of signal loss will be very dependent upon the quality of your amp, the connections and the cables used but don't think with all the above being of decent quality that it would be noticeable.
As to phono cables, generally these cables are not designed for carrying video signals although I guess the more expensive ones will be OK. You need decent 75ohm cables for use as component but they won't neceessarily say component on them.
Re the XBox, to get component from that you will need the Hi-Def kit which comes with the component leads anyway. If you chip your XBox and use the Video Select CD you'll also get progressive output - gr8 if your TV can support it. Look in the Gaming hardware forum for more info on this.
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