The HDMI connections on the 505 are simply pass-through switching - ie the signals on the HDMI can pass through the receiver to a TV, but the receiver doesn't do anything with the signal, such as extract and decode the audio content.
Yes, you need a separate digital audio connection between player and receiver. Coaxial/electrical tends to give the best results, as there's less switching and modification involved than there is with the optical hook-up.
By the way, if you also want to play DVD-Audio and SACD discs on the Denon through the Onkyo, you'll also need a set of six analogue interconnects between the two, as this audio isn't carried on the electrical digital link.