A few thoughts:
In Setup 1, I presume you set your receiver up as having NO SUB, correct?
How are your speakers connected in Setup 1? Are they connected to the sub's high-level outputs or are they connected to your receiver's ouputs?
Regarding setting your subwoofer's crossover to 100 Hz in Setup 1; the term "crossover" can be a bit misleading when it comes to most subs. Most subs do not really have a continuously variable crossover, but instead have a variable low-pass filter (the "crossover" knob) and a fixed high-pass filter. So, if your speakers are connected to the sub's high-level outputs, you really don't know what they're being sent unless you know what your sub's fixed high-pass filter value is. So, it may be a good idea to try and see what this value is, either via the sub's manual or by contacting the manufacturer.
Now, there is also probably a difference between the slopes of the sub's high and (variable) low-pass filters relative to the slope of the receiver's digital crossover. Most likely the receiver's crossover slopes are much steeper. Many people DO find that the shallower slopes of a subwoofer's filters, when sub and speakers are connected via the high-level inputs and outputs, blend much better, especially for music performance. So, your impression that Setup 1 sounds more well-blended may be spot-on.
Lastly, how do you calibrate your system for Setup 1? And for Setup 2?
In Setup 1, I presume you set your receiver up as having NO SUB, correct?
How are your speakers connected in Setup 1? Are they connected to the sub's high-level outputs or are they connected to your receiver's ouputs?
Regarding setting your subwoofer's crossover to 100 Hz in Setup 1; the term "crossover" can be a bit misleading when it comes to most subs. Most subs do not really have a continuously variable crossover, but instead have a variable low-pass filter (the "crossover" knob) and a fixed high-pass filter. So, if your speakers are connected to the sub's high-level outputs, you really don't know what they're being sent unless you know what your sub's fixed high-pass filter value is. So, it may be a good idea to try and see what this value is, either via the sub's manual or by contacting the manufacturer.
Now, there is also probably a difference between the slopes of the sub's high and (variable) low-pass filters relative to the slope of the receiver's digital crossover. Most likely the receiver's crossover slopes are much steeper. Many people DO find that the shallower slopes of a subwoofer's filters, when sub and speakers are connected via the high-level inputs and outputs, blend much better, especially for music performance. So, your impression that Setup 1 sounds more well-blended may be spot-on.
Lastly, how do you calibrate your system for Setup 1? And for Setup 2?