I'm glad you brought that up, I've been trying to answer that question myself, and I think it goes something like this: the term "Dynamic" in both cases is somewhat 1984esque, in that it implies the opposite, e.g., Dynamic Volume means that dynamics are intentionally counteracted by processing that removes differences between high and low volume across time, thus by definition reducing the dynamic range, whereas Dynamic EQ appears to work cross sectionally (at least that was the metaphorical term in my field in graduate school to describe simultaneous differences versus differences across time, I think it may be a metaphor from cellular biology, i.e., cross sectional analysis of stained frozen cell slices), to reduce differences in loudness across different frequencies at the same point in time. The problem with Dynamic EQ seems to be that any given sonic signature, e.g., that of a bell, is distinctive due to the precise pattern of peaks and valleys across the frequency spectrum that defines that particular sound, so if you elevate certain valleys as you do when you shift the instantaneous curve of soft sounds to mimic loudness, you may inadvertently kill the distinctiveness of particular sounds that stem from transient fluctuations, the momentary peaks and valleys that make a sound instantly recognizable.
So to summarize my view, whereas DV compresses the volume of different sounds across time, DE compresses volume across the frequency spectrum with regard to specific sounds at a particular point in time. Both, in my experience, squash sound and result in flattening of perception.
My daughter and I were watching a movie tonight and I was wondering why it seemed pretty tame so I checked Audyssey and sure enough it had defaulted to Dynamic EQ (or perhaps after playing with it last night I mistakenly left it on); once I turned it off, we both went, "Whoa," both the helicopters (loud primarily LF sounds) and bells or other musical notes (soft primarily HF sounds) were much clearer and distinctive/dramatic due to the uniqueness of their respective sonic signatures; interestingly even the dialogue (primarily midrange) sounded clearer due in my estimation to allowing the momentary frequency of the highs and lows to breathe.
Finally, it seemed to me that DE interfered with sovereignty of respective frequency ranges; i.e., when DE was turned off, different sounds appeared to exist in their own "space", i.e., they were extremely clear and could co-exist side by side with no interference from other sonic signatures especially when simultaneous sounds existed in different frequency ranges. With DE on, there was an audible smearing that resulted in fuzziness when two sounds occurred at the same point in time, even if the sounds primarily emerged in different frequency ranges, and even when sounds were emitted by different physical speakers, situations in which sonic interference might be expected to be minimal, given modern digital processing.
As I am gradually becoming less of an ideologue (even less so due to the spectacular success of Audyssey EQ to do what EQ has always been meant to do) I can easily imagine an implementation of Dynamic EQ that would work incredibly (obviously low volume representations of music/HT remain weak) and anxiously await its emergence (I was really hoping we were there).
Aside from the above thought process and the dramatic shift in quality I experienced tonight when I turned off DE, I must confess I have noticed that every time I turn on Dynamic EQ I find myself in the way back machine and flashback to 1974 when our hifi had a Loudness button, you turned it on and it sounded cool but 5 seconds later you noticed that everything sounded the same and realized that this was a form of numbness/desensitization rather than sensory enhancement.
Well hopefully this makes some sense, I find the topic quite intriuging, now that we are technologically getting somewhere, finally . . .
