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For plain Dolby Digital and DTS I can't hear a difference when switching from LPCM to bitstream and vise versa. The only thing it does is change the display on my 4306 to say Dolby Digital or Multi Channel etc.

BTW the PS3 will send plain DTS if using bitstream when viewing a DTS MA HD audio track. This would be less desirable than the actual lossless audio if using LPCM.
 

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As far as I knew the PS3 (I have one) doesn't pass the re-encoded bitstreams. Let me know if I'm wrong because that woud be way cool. I'm in the understanding that the PS3 will decode everything and pass it as LPCM only over HDMI.

As far as the ARV light coming on for PCM Wayde. Don't the bitstreams get decoded into PCM in the AVR?
 
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