The DVD player was the culprit: I had to go into the sound setup menu to enable digital output in Dolby Digital and DTS. I could then turn AUTO POLL back ON on the AVR and it detects the digital signal automatically. The sound is night and day better. Now this really is a HTiB killer system. I am truly amazed at how well the little Polk Audio Mini Monitors hold up beside the much newer center and the H-100 subwoofer. I actually had to turn the subwoofer down to 2 so that the effects would not be overwhelming. Ron was right: it was ON, now it IS "OOONNNN"!
I even tried, for the fun of it, turning the sub OFF altogether in the h/k setup, and even without the sub, the sound coming out of those little Polks was quite a surprise: they have a whole new lease of life. Adding the sub means that everything sounds better, even at low volume levels. Even -16dB (or 12 o'clock on our old Yamaha) is far too loud for comfort in our mid-sized California living room. The amazing thing is that, whether listening to music or movies, even loud sound is not tiresome: it is powerful melodious sound, not loud noise. This is exactly what I was hoping for on all counts.
I can't imagine that anyone that gets this setup, adding R50s and R150s from Fry's for instance (since they won't have our "legacy" Mini Monitors), could possibly be disappointed or think that they should have just stuck with a HTiB.
Now, I just need to finalize some tweaks so that all the settings seem right for the long term. One little question though: Titanic is in Dolby Digital 5.1 surround EX or 6.1 DTS ES (has to be selected in the DVDs own menu). Which would be the better choice?