I have read many threads so far on different theories as to which is better, but 1 most interesting was an individual who stated the ps-3 when set to lpcm decodes the dt-s signal prior to it being sent to my pioneer Elite vsx-03 and that is why my Pioneer is not showing the DT-S light but it does show the PCM light. Am I getting the same quality and seperation of tracks as if I were to set the PS3 to Bitstream and then my Pioneer would show the DT-S light? As I have read either is quality sound but if I set the PS3 to Bitstream then I lose the availability of the Dolby True Hd???

If you decode in the PS3, the signal sent to your receiver is PCM so that is what will light up. The PS3 cannot send the bitstream of TrueHD or DTS HD-MA (the two lossless hi-def audio codecs) to your receiver. It CAN bitstream DD and DTS in their "regular" format--either with HDMI or toslink. In those cases, your receiver will light up with Dolby Digital or DTS, but you won't be getting the full resolution of the soundtracks.

As for the lossless decoding--whether it is done in the PS3 or the receiver matters not at all. The result is the same (I'm sure someone will dispute this, but I've yet to see any compelling reasoning for preferring the decoding be done in the receiver/pre-pro vs the player when HDMI is in use--with analogue connections, there are other factors at play that could affect sound quality). Unless it is critically important to you that the display light up with TrueHD or DTS HD-MA, then just send the PCM from the PS3 and sit back and enjoy. It will be just as good.