I recently set up a friend's system with a Denon AVR789 and a PS3 and had that very same question. Most of the time you will let the dvd player pass the signal directly to the receiver and let it decode the audio. If the Denon decodes the signal, it will tell you Dolby Digital or DTS or whatever.
The PS3 doesn't give you this option. It does the decoding and passes the signal like others have stated. In my case, the Denon displays "Mulit CH 5.1" which is one of the PCM settings. Yes, you are still listening to Dolby Digital TrueHD and DTS-HD even if your receiver doesn't tell you so. It would be nice but it doesn't since the audio has already been decoded.
It would also be nice if the PS3 gave you the choice of decoding the audio or passing it along and let the receiver do it.
I also figured having the PS3 do the decoding is a good thing, since it constantly gets new firmware updates. If there are ever additions to the Blu-ray spec or audio formats, it's likely you'll be up to date with everything automatically without running your own firmware update like I had to do for another friend's Sony BDP-S300. He was buying new Blu-ray movies and complaining to me when his dvd player would not even load or play the dvds.
