Not sure about that Yamaha. Most avr's disable the video circuits in pure direct, and in regular direct mode, the auto EQ is bypassed. I also use pcm from a PS3. My Onkyo says "multichannel" when playing 7.1HD-MA track. I us PLIIX for 5.1 tracks. I would look for "multichannel" in the sound modes. Yamaha does it a little different,so I might be a little off. My older spare Yamaha is only 5.1 so the manual probably won't help but I'll look yours up.
Thank so much for the quick response. It may bypass all those settings to play 7.1 . I will have too look at the receiver next time. When the blu ray is in 5.1 is it playing both speakers at the same time ? So left back and left surround for example.
I think if the source is 5.1 you'll want to use pro logic IIx. That will enable all speakers. (The back two won't be discrete unless the source is 7.1 though) I think for 7.1 you'll want movie standard like you were or try straight. I know we got some Yamaha guys in here. They'll know for sure but that's where I'd start for now.