Join Date: Sep 2003
Location: S.F. Bay Area, CA
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Automatic will attempt to sense the HDMI audio capabilities of your receiver. If you do see 7.1 listed, I'd use manual and remove them. Since, in theory, it should help the decoders. (See next.)
For TrueHD & DTS-HD MA, a 7.1/6.1 encode also has the ability to output formal 5.1 and Stereo mixes. If your PS3 knows you have a 5.1 environment, it should decode a true 5.1 mix as intended by the mixer. (This assumes the PS3 is doing it's job correctly.) This is one nice advantage Lossless has over PCM.
For 7.1 PCM, you'll get whatever Sony decided to do to downmix to 5.1 or stereo. It's likely they mix it in somehow, but the true process is not documented. (There is no industry standard.)
For your Onkyo question, if you send decoded 7.1 PCM content to it: You'll experience whatever Onkyo designed for downmix to 5.1. It's also likely mixed in, like my previous PS3 downmix comment. It might be documented in your manual, if you are lucky.