Sounds like you are right. He's connecting HDMI from his receiver to carry video to the TV, and optical from the receiver to the TV for audio. I agree with the OP, this should not be necessary.
I have an older Sony receiver I use in our little game room for when I want the living room for me. I have a PS3 connected to it via optical, as it does not have HDMI. I have the stereo set for A.F.M. (no idea what that means, this Sony came to live with me when I got married) and it properly displays DTS, Dolby Digital or Dolby Pro Logic II when it detects the input signal. Since this is an older receiver, it is not capable of anything better than these audio feeds.
As stated above, make sure all the proper audio options are on for your receiver. Mine did default to just 2 channel, but again I'm using toslink, not HDMI.