According to the manual it can pass through untouched. On page 49 in the manual it reads:
Video Mode: The default setting of Processor Off passes the video signal through to the display without any processing. Select one of these processing options to optimize the picture for the current program by applying adjustments to the brightness, contrast, color and sharpness:
In the OSD go to Video Modes and select Processor Off - according to the manual. As with so many 'features' of these HK AVRs of late - YMMV
I have a 247 and have similar problems with the video processing. It refuses to upconvert s-video and composite to HDMI even though the manual says it can - and for a time did. I simply turned it on the other day and it decided I didn't need that feature from it any more.
I should have kept the Onkyo 506 I sold to my nephew.