HTPC or AV Receiver

I'll start by saying I know little to nothing about home audio. I'm no audiophile or anything of the like, but I had a family member ask for a little help. They want to add a home theater like setup for their bedroom (15'x15') and another for the living room. They're trying to save as much as possible. They are considering an HTPC component (and obvious choice). They are hoping that they can eliminate the need of an AV Receiver by putting just a little extra into an HTPC. My question is whether or not this is possible (eliminating an AV reciever from a home theater setup). I have heard that there is a serious loss of audio quality trying to go that route and that a 7.1 system is impossible. They are insistent on a 7.1 setup for at least the living room. Any help would be appreciated.