Yes! You can pass the video signal through the receiver. This is most useful when you have more than one video device (e.g. DVD, cable box, VCR,...), and you can use the receiver to switch to the audio and video for the selected source at the same time.
On the back of your Onkyo HT-SR800 there is a section labeled "Component Video." It has three inputs and one output. So, attach your DVD by component cables to the "DVD In" and then attach component cables from the "OUT" receiver connection to the TV.
If your TV doesn't have a component connection, then this addresses your other question. You can't gain anything with this, because your TV doesn't support it. Connect the DVD to the TV according to the highest quality connection that they both support, in this order: composite, S-Video, component.
If you are using composite, but they both handle composite, than yes, you will get a better picture by going to component (or even S-Video). If both devices support progressive scan, this could be a substantial difference.
Your receiver accepts component, s-video and component video, but keep in mind, it may not do "video switching." So if you connect the DVD in via component, but go out to the TV over composite, then you may not get any video at all (but feel free to try). Try to avoid this, but you may be forced to try depending on the limitations of the various devices that you are hooking up.