360 or PS3 if I buy a new console given the circumstances? And anyone know what the prob with my 360 might be?

HDMI support Video+Audio signals - you just use the volume on your AV system and keep the TV volume at 0. Maybe your AV System does not have a free HDMI port? If not, then your other option is to have HDMI from Bluray to TV for video only and then coax from Bluray to AV System for audio.

If you do this then you need to make sure you have the correct setup on your Bluray to send audio out via coax. If your AV system does not have HDMI or coax inputs then it's time to upgrade your AV system...