Blu-Ray HD Audio Coding, worth $1000 Upgrade?

I need to correct my earlier comment. To do 5.1 over toslink (or coax) for that matter you would have to reencode to DTS or DD. The only way to get lossless 5.1 out of the PS3 is to have a receiver that is capable of receiving LPCM over HDMI, which your receiver does not appear to have the capability to do. Alternatively, you could get a Blu-Ray player that decodes everything internally like the PS3 but also has 5.1 analogue outs to hook up to the analogue ins on the receiver.

"I am really curious to hear from someone who has upgraded to DTS-HD Master. Does it make a big difference?"
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I have just recently started to listen to the ps3's new codecs in my home theater system with blu-ray,and,in a word, "impressive". I did not expect that much of a improvement in sound quality,you know, being a two channel guy, but now you can color me impressed.

I feel the biggest improvement in the sound over DD or DTS is that the sound field is now of a more organic nature with an over-all better sound stage,more natural to say the least. Definitely a BIG upgrade and worth the technology IMO...

"Iplaynaked, you make a good point. That is the exact reason I post here! I want more than one opinion. I like to collect a good amount of information from a variety of sources then make an "informed" decision."

Actually, I'm stretching it a bit, saying even the experts are confused. Yes, no one knows it all. It's always a constant learning curve. Yet, many many experienced professionals in this industry have a solid fundamental grasp on all important aspects of audio/video systems - quite a bit more knowledge and experience than the average enthusiast. So, trying to sort through all the opinions is like listening to all the different opinions expressed in the audience of the Oprah Winfrey show, and trying to resolve the truth! Basically, if you really want to learn something, in the end, you're better off getting expert advice, doing a bit of studying, and then doing hands on tinkering yourself. It's all good though. Like you said, It's fun.
Still though, now and then, there's some new thingy that pops up that throws ya for a loop a little bit. You combine all that with all there is to learn and it can get very involved trying to do these systems for the best possible results, given all the changing variables that are constantly being presented to system designers.
It's like a never ending class room learning the facts, and keeping up with every changing technology and product selection. I tell ya...

Coach, what version software is your PS3 using? You need version 2.41 or higher to enable the lossless audio. You do not have to search for pcm. it should come up automatically if your pioneer is set to auto and you run a blu-ray movie through an hdmi cable. You will also find everything you need to know over at avsforum under the bluray player PS3 thread. There are several hundred pages devoted to its use.

Hey Coach.
As you have mentioned above that you plan more incremental future upgrades (add rear speakers maybe), you really need to get a 7.1 receiver w/ multi HDMI inputs and internal decoding of Dolby True as well as DTS Master. I have an Onkyo 805 which is fabulous. It has better amps than the newer Onk 806 (although they both rate 130w x 7). You can find a new-in-box 805 on eBay for under $725.
Mike19