Try ProLogicII, for Dolby ProLogic II, or something similar, like "PLII" or "PLIIx". This is an output format which gives you a good guess at surround information and bass from a stereo input. "Dolby Digital" is an input format that includes surround information and bass. "Direct" is a receiver setting that means don't try to extract surround information from a stereo (2 channel) input. (I hope I got that all straight.)
You don't have any choice about input format - it is what it is (except that sometimes a source may contain alternate input formats). You will have some choice about how to set your receiver, which generally boils down to "just play what's in the input" ("direct") or "elaborate what is already there to make it sound better" (various choices, e.g. ProLogic).