HDMI vs 7.1-channel analogue outputs

HDMI is just a DVI with sound, HDMI supports encryption for the lawyers and simplicity for newbies. The sunset rule from 2011 stated high definition video content could not be transported over analog connections, it was for copy right protection and nothing to do with performance. I personally prefer the digital conversion to be done at the source.

jeffrey75 
Good answer.

So if the digital signal is passed out of the source/dvd via hdmi, does the processing just take place at the AVR level?  As long as the the AVR has decent processing I wonder if the main issue with HMDI is additional signal noise with a longer path to digital to analog conversion.  

Yes, analog's square wave is much easier to pass thru a metal based signal cable than small packets of digital bits. Might I suggest taking a look at a article entitled "A Deep Dive into HDMI Audio" on Audio Science Review website for a little more clarity on the matter than I can provide.

The better audio amplifiers are much more likely to have analog inputs than HDMI inputs.