I would assume that the Yamaha displays what's coming into the system. Announcing on the display that the unit is converting a codec to PCM would be redundant. All those codecs have to be decoded into PCM in order for the digital to analog converter to turn them into analog.
What the display probably means is your PS3 is decoding to PCM (unless you happen to be playing a BD that has a PCM track). I believe older PS3s can't bitstream one or both of the lossless codecs, so that may be what's going on in your case.
There are varying opinions on whch lossy codec, DTS or DD, is "better." They do the same thing, in general - using perceptual models to throw away the parts of the sound that are not actually audible (or at least attempting to do as little damage as possible within their bitrate - to let DVDs store the soundtrack with much less bandwidth use.
Both of the lossless versions are, uh, lossless. Like a zip file, when "unzipped" they (are supposed to) yield the original PCM. Since they end up identical they are for all practical purposes identical. Just to be clear, an optical or coaxial digital connection will not allow the lossless codecs to pass (and they won't pass multichannel PCM, either). So PCM over optical or coax digital will be stereo, not multichannel.