Monkeyboy,
There are various potential advantages to having things in two boxes - not having to have such a gargantuan power supply for it all, keeping large power-amp currents as far away as possible from small processor currents, and so on. It can also make the system easier to upgrade, although that's less significant than you might think as most one-box solutions can either output at the pre-amp level (for an external power amp) or take input at the pre-amp level (from a separate processor).
How much all this matters in practice is going to vary from one product to another. For practical purposes, though, separate processor and amp represent the next step up in price and quality from the higher-end all-in-one products. In my view you can arrange products in price/quality steps like this:
All-in-one speakers/amp/processor system (e.g. Acoustic Energy Aego P5)
Cheap one-box (e.g. Marantaz 4200)
Medium one-box (e.g. Denon 3802, Arcam AVR200, Sony VA555)
Higher-end one-box (e.g. Denon A11SR)
Luxury one-box (Denon A1SR, Pioneer AX10)
Separates: (e.g. Arcam, Tag-McLaren, Bryston, Meridian 500 series etc.)
Ultra high-end (e.g. Lexicon MC-12, Meridian 800 series, Theta)
At each step there's a substantial jump in price and (hopefully) an appreciable jump in quality, although how much of a jump is highly subjective.
What you need to do is decide how much you want to spend, then see if you can draw up a shortlist and audition them. If your target for processor and amp is £3000 or less than you'll probably end up going down the all-in-one route. If you're planning to spend upwards of £5000 then you'll probably go the separates route. One final advantage of the latter is that you can mix and match brands. Tag McLaren, for example, make a good processor, but their power amp is less impresive. Having them in separate boxes means there's no reason why you can't use a Tag processor with (say) an Arcam P7 power amp.
If you're looking to spend around £2000 then you could go down to a Denon AVC-A11SR (which can be got for £1260) or you could go up to either a Denon AVC-A1SR or Pioneer VSA-AX10 (both which you can get on the 'Net for around £2300). Whether going high rather than low is worth it will depend on your ears, your budget, and the quality of speakers you propose to hook up to it. Both the Denon and Pioneer boxes are good value IMO.
If you decide to go the separates route, and if you absolutely definitely need 7.1, then processors worth listening to are Arcam AV8, Meridian 568.2, Tag McLaren AV32R and maybe Bryston SP1.7. (There are some others at that price range, but they're limited to 5 channels). On the power amp side there's really only the Arcam P7 if you insist on 7 channels all in the same box. There are lots of very good 5 channel amps, though, and of course one can always add a separate stereo power amp later for the other two channels. Good 5-channel amps: Parasound HC2205, Bryston 9B, Meridian 558.2.