Upgrade existing Speaker setup

Yes, it can. At that price point, you might consider this:
http://www.amazon.com/Onkyo-TX-NR3007-9-2-Channel-Surround-Receiver/dp/B002M78EPM/ref=sr_1_1?ie=UTF8&s=electronics&qid=1256132992&sr=1-1
Right now it's $1695. The Yamaha isn't setup for 4 ohm speakers
But, the Onkyo can handle 4 ohm speakers. You should stick with the Polk floor standing speakers, since they are a match with the others you have. If you get the LSi15 or LSi25, you'll need the LSiC center, so the front three will timbre match.

The Onkyo also has a better video processor than the Yamaha (HQV Reon-VX).
It also has the Audyssey MultEQ XT, which is very good.
The Yamaha has 4 HDMI inputs, and the Onkyo has 7 (6 rear, 1 front)

For the money, and for your purposes, I think the Onkyo will be a better buy.
A lot of people will tell you that you need an external amp, with any receiver, when running 4 ohm speakers. I run 4 ohm Polks, with my Onkyo 805, without any problems, because you can set it up for 4 ohm, during the initial setup.
Good luck with whatever you get!
Let us know how you like it, once setup..............