bitream setting on PS3 for audio cds

i take it if my PS3 is set to bistream, when listening to an audio CD (i'm using an optical cable for audio), I will not get 2 channel stereo in uncompressed format unless i switch the setting on the PS3 to linear PCM. is this correct?

This is not correct. The bitstream from a CD is PCM, so when bitstream is selected you still get 16-bit, 44.1kHz PCM stereo from CD's.

We make a distinction between bitstream and PCM because some receivers and processors cannot decode Dolby Digital or DTS signals, so that in those cases a bitstream of one of those formats yields either complete silence or a really unpleasant noise - setting the player to PCM in that case will force the player to decode and downmix to stereo PCM or simply prevent the player from providing any signal. For optical and coaxial outputs, it's a very rare case when selecting PCM is a good choice. (Obviously the situation changes and gets more complex for HDMI, but that's a whole different can of worms...)