Thanks for the replies guys,
I agree it would be optimal if I could run the signal through the receiver first. Unfortunately it is an 5+ year old model (Onkyo HT-R330), and does not support any HD video ports.
The reason I have it going through the TV first is so the kids only have to switch one input channel to get all the devices working (Cable, PC, Wii, PS3, etc) of which 3 run at HD.
I've tried a number of source stream types including DTS, DD. The receiver does say it recognizes a DTS stream (indicator changes from pcm to dts) when I play a given file, but the surround and center channels don't get any signal regardless of format. I'll try powercycling it as you suggest @tootal2.
My receiver and my PC support SPDIF, so I could wire them directly, but it does mean that we will have to switch both the TV and the receiver. not optimal but probably reasonable. The receiver treats each digital input differently than it does between AV input devices, but you can switch between them, albeit clumsily.
I know I'm working with some '08 technology here. Could I bypass the issue with an AV switcher? they were prohibitively expensive last I checked. might as well by a new receiver like this one: