AC 3 hook up to DvD Analogue PCM or Bitstream

I have an older AC 3 ready reciever. I have the 2ch hooked up to the 2ch on the dvd and the 5.1 hooked up as well . My dvd gives me the option of PCM Bitstream or analogue. My question is which way should I listen to it if I want the best 2ch listening. Does my AC 3 reciever actualy have a dac in it? or is it all being converted to analogue before it leaves the player.
Thanks for your time
Does it have any optical input? Sometimes they are labled Toslink and may have a black plug covering it.

BTW, what receiver do you have?
It is a Yamaha RXV 695 and it was the first from Yamaha to have AC 3 ready. It was bought in about 97 It has no tosh link. When I have played around with it, it seems that through analogue it is quieter by about 8db.
I am afraid your Yamaha doesn't have a digital input. Its AC3 was designed for Laser Disc.
It does not have a DAC in the general sense. It has a DAC and a AC3 decoder for converting AC3 signal into 5.1 analog signal. My guess is the DAC might be embedded inside the AC3 decoder and not be a general DAC for PCM. Besides AC3, Your Yamaha only support Dolby ProLogic from analog input. So every input other than Laser Disc must be analog.