Audio from galaxy to hifi??

Most Android devices aren't capable of outputting audio over USB. So no, it won't work.

You pretty much have two options. Either the 3.5mm jack, or over Bluetooth Audio. You would need to find some sort of Bluetooth adapter with either a 3.5mm jack or optical out or whatever.

 

It's probably because AFAIK the S3 doesn't support USB mass storage mode, only MTP*. USB devices like the Onkyo can't mount MTP only devices, as MTP doesn't allow direct access to the device's file system. In fact MTP devices will only mount on a PC or Mac. Android devices that do support USB mass storage mode, should work OK with the Onkyo.

* Media Transfer Protocol - Wikipedia, the free encyclopedia

You could try this, but it does involve rooting and some hacking...
HOW TO Enable USB Mass Storage Mode in Samsung Galaxy S3

 

Sorry for the necro, but if you're still looking at this, I'd try the headphone jack first, since it's a ~$5 cable instead of an expensive part. If your receiver has a 3.5 mm input jack, you just need a 3.5 mm male to male cable (the kind you use to hook a phone or mp3 player into the aux in jack in a car stereo.) If it doesn't, you'll need a 3.5 to RCA cable, which has the plug for your headphone jack on one end, and the red and white stereo cables for your receiver on the other end.

Edit: Derp, misread the OP. Just to make sure, did you have the volume on your phone all the way up when you had it connected by the cable? Digital volume controls do weird things to sound quality, especially if the DAC isn't all that hot. Standard practice is to turn your phone's volume all the way up, and adjust the playback volume at the stereo. You can look into the Bluetooth dongle, but if it's only listed for the next model up, I doubt it will work with your receiver. Stuff like that usually connects through a proprietary jack, and if your model doesn't have that jack, or doesn't have the firmware to interact with the dongle when connected to it, it won't work.

 

You can go from micro USB to HDMI if the stereo supports it.