I don't know if you have the option to set it to "Auto" (maybe is called Direct on Onkyo AVR's, my Yamaha has the Pure Direct option too but it can't be programed, I need to choose it everytime a want to use it), if you don't have the auto, leave it in direct and play a couple of DVD/CD's with formats (DolbyDigital, DTS and stereo) and see if the AVR's recognizes and play them correctly.I have the optical cable from the samsung blueray connected to the receiver with the video connected to the TV via HDMI.
I'm getting confused with all of the surround mode settings available on the receiver. Should I just set the receiver to DIRECT mode? Will this take the input format (which ever it is) and directly distribute through out my audio system? Do the other modes (NEO6, PRO_LOGIC...) simulate surround sound based on a stereo type input? Therefore If I have a dolby-digital input I should not be using any of these simulated modes?
NEO6, Pro-Logic, etc. are surround decoders used by the AVR, if you use any of them with an input source that's what it will be used to output the sound; for example if you play a DD 5.1 audio in a movie but your AVR is set to use Pro-Logic that's what it will be used ...is better to set it to auto.
EDIT: Read you manual page 51 shows how to set it to auto (you can read about surround modes from page 42).