A good rule of thumb is to spend at least 10% on cables as what you spent on the components.
So if you spent $5K on components expect to lay out $500 for interconnects.
It may seem excessive but cables really make a difference in good equipment.
As for which type, using the component cables will give you the best picture.
HDMI is a convenient cable ie. one cable suits all.
I personally prefer to use coax cable for audio not the fibre optic as you can get better bang for your buck with coax. Cheap fibre can sound nasty and degrade sound quality.
I recommend you go to a high end HIFI store for better cables (not chain stores like Harvey Norman). They will guide you and let you demo the cables.
Cables do make a difference - trust me and the world of physics/electronics.
The optical is considered the best, as long as it's a quality brand I suppose (like anything).
Is it coax or AV cable? I think you mean the single AV cable which is the simplest way and possibly the cheapest. Components are the next best thing for video or picture as Mat said too. Not sure on HDMI, so is that a new cable set-up? Must look into it. The last I checked on all this, I was setting up my new surround sound and DVD etc.
I use the Optical for my PS2 as my DVD player doesn't have the outlet for it. Seems pretty sweet. I use the av type cables for my sound, seems fine. I do have 5 channel surround though which probably helps.
Yes coax is used for the aerial but coax is a type cable that comes in various forms.
Component cables, composite cables are all forms of coax.
HDMI is new technology for making connecting components easy for the average person. AV purists still go with separate cables instead of the one stop shop known as HDMI.
Manufacturers are pushing HDMI because the cable has the technology to prevent piracy through smarts in the cable. Not that piracy is recommended but what else will they be able to do with this cable? (conspiracy theorists comment now).