i don't even remember seeing a 'receiver' option, was this a new thing with one of the updates? i haven't checked it since i set it up last april.
thought though, as i'm connecting everything to the receiver, and then sending audio to the speakers and video to the tv, i would have it set to 'external' anyway, i'm thinking if you had all your sources connected directly to the tv, and then the digital audio out from the tv to a receiver, that might be the situation you'd use 'receiver'.
TV- tv speakers will play audio that is input to tv
EXTERNAL- tv has nothing to do with audio at all, it acts solely as a 'monitor'. no audio in, no audio out
RECEIVER-tv acts like a receiver and controls which source is being displayed and heard, but outputs audio to an external speaker system.
Displays: Samsung PN64F8500/JVC X35
AVR: Pioneer VSX-1018AH, 5.1 audio
Sources: HTPC(Mediabrowser), PS3, XBOX360, Wii, Sony DVP-CX995V
Control: Harmony One