Aha! Now I understand...

As for the 2-channel stereo materials, I would predict that the sound quality will not appreciably improve if you use the receiver in the analog direct mode, unless your DVD player is very old. It is just a matter of doing D/A conversion on the DVD player vs. on the receiver. So, unless the quality of DACs are very different, you are unlikely to hear a difference. However, if you listen to stereo materials using matrix surround processing (such as DPL II Music) or using the receiver's digital bass management (for the subwoofer), then there is at least a theoretical advantage on the digital connection -- with analog connection, the audio signal has to go through the DAC on the player, the ADC on the receiver, and then the DAC on the receiver. With digital connection, you can skip the former two conversions. You may well hear a subtle difference here.

The major advantage of digital audio connection is, however, obviously the prospect for the Dolby Digital and DTS native multi-channel playback, which is simply impossible with 2-channel analog connections.