why doesnt "cd direct" sound better ??

I suspect the Pioneer, and other receivers mentioned, "process" or "blend" the left/right channels in stereo mode whereas in direct it is pure left/right only. This is what the Denon I used to have did and I suspect the Pioneer and others are the same. Your user manual should explain the stereo mode effect.

My "pure direct" mode on my Denon AV3803 does improve the sound on any source. It gets rid of the video though so I can't see what song or artist is playing on my Dish Serius. I never expected to notice the difference. Less background noise, etc. When I sold Onkyo, I usually said it probably wouldn't make any difference. But then the customers usually had crap for speakers.

"direct" sounds way better on my anthem. It gets rid of any processing for HT that is involved and acts as a pure pre-amp from my denon dvd. Much cleaner and better for 2 channel, kind of lame for theater though.

I use a Modwright Denon 2900-truth tube mod-when I spoke with Dan at modwright he advised 6 direct on my reciever
was the best way to use the player.I fully agree-it is straight from the denon to the amps-- and sounds
incredible.