Entertaining reading (before you deleted it on 7/16) but not quite right. Close, though.
What comes out of your speakers (or headphone transducers) is an analog wave not a stepped sine wave. You've mentioned steps a few times. Those appear before the filters take out the high frequencies that cause the stepped appearance. That's done with every audio D/A circuit I know of. If it weren't for filters, formats such as DSD, would be unlistenable. So the thought that you are getting anything but a non-stepped analog signal out at the end, is incorrect. It would also damage your speaker voice coils if it were true. Speaker drivers don't like DC and they don't like steps either.
As far as PCM versus Dolby TrueHD and DTS-MA HD, those all produce the same digital output. That's the whole purpose of Dolby TrueHD and DTS-HD - to produce a signal that is an exact (not close, but exact) representation of the original PCM data. The advantage of Dolby TrueHD and DTS-MA HD, is that they take up less space than PCM because they use lossless encoding. So to say that "compression will always take at least SOMETHING away..." is incorrect. That lossy compression takes something away would be correct. As you correctly pointed out, Dolby TrueHD and DTS-MA HD have the other advantage of including a lossy core signal for use with equipment that can't handle the original PCM signal.
LPCM in not another name for higher-than-2 channel PCM. LPCM stands for linear pulse code modulated. PPCM is packed pulse code modulated which is PCM that has been losslessly compressed. The term originated around that same time as Meridean Lossless Packing (MLP) was introduced to encode multichannel DVD-Audio discs. PCM just stands for pulse code modulated and is what you see when you look at a .wav file on a computer screen. LPCM is just saying that the PCM code has not been compressed. Whether PCM is stereo or multichannel does not change whether it is LPCM versus PPCM versus PCM.
In terms of whether 5.1 is better than 7.1, it depends upon the source material. I would much rather mix music in 5.1 than 7.1 because, for the most part, instruments sound strange coming from behind the listener. Off to the sides has a nice effect for background vocals and guitars (if done properly), cymbals, etc. For an airplane flying overhead, yes that's a great use of 7.1. But, it isn't as easy as saying 7.1 is always better than 5.1.
Edited by alk3997 - 7/21/13 at 3:30pm