1. Is it possible to use HDMI for video and Optical out for sound (dolby digital, dts)?

2. Are there any issues with this combo or does it just work perfectly?

3. Any tips/settings to get the best picture with this combo?

Don't have a PZ85U but I do have a PZ77U and I use HDMI for the PS3 video (straight to tv) and optical out (non-HDMI reciever) for the sound and it should work the same for you. Works fine...although if you don't want to have to remember to turn the tv sound down every time you use the PS3...just go into settings and disable HDMI audio. (on the PS3)