I would go for this within your budget, much better sound than the Onkyo you are looking at
if you can stretch your budget a bit more also look at the vsx1021.
One thing I will advise though is that you revise your budget for speakers upwards somewhat as you will not get a decent 7.1 set for £200 unless you plan on upgrading the speakers at a later date you will not really appreciate the quality of a midrange AV receiver.
For the speakers I would suggest getting a decent front 3 L,R & C matched set initially then add the surrounds and decent sub when finances allow, take a look at Q acoustics or Monitor Audio for the front 3 which will be a good match for the Pioneer amps
more info on the Pioneers here
One last piece of advice go get a demo with your preferred amp and speakers and take some music or film you know well to use as the source.