TVs specifically downscale audio to 2 channel via optical out except for OTA signals. Why they do this IDK maybe political to encourage hardware manufactures to implement ARC or to discourage the use of toslink? Either way it really is only the TVs that do this. That BD player should be fine if connected via HDMI.
Another question... Why are you using those particular speakers? Do you already own them or is this a new purchase?
The receiver is pretty bare bones and will be similar to all others in that same price range. I am a Denon fan as well, and for $189 you can get a 1612 with Audyssey MultEQ, Dynamic EQ, and Dynamic Volume
Front panel USB port for connected iPod, iPhone, etc. (not for playing video)
HDMI-CEC (allows for control connection between TV and AVR, standby passthrough, and ARC / audio return channel)
Dolby PLIIz (if you expand to 7.1, the extra two speakers can be "height" speakers instead of "surround back")
A superior remote control which can be programmed to control other devices (using preset codes), and has dedicated [Movie], [Music], [Game], and [Direct] buttons for controlling surround modes
That is what I would do/did