There are a couple of problems with that.

Companies like Meridian and Lexicon have the in-house expertise needed to create and refine surround processing technology. They've been doing it for decades. In contrast, Dolby had to go outside the company and hire Jim Fosgate to design Pro Logic II.

Does Outlaw have any expertise in this area? Have they ever designed surround processing. Or, like every other A/V manufacturer, do they simply license this sort of technology from companies like Dolby and DTS?

And even if Outlaw had the know-how to change the PLIIx algorithm, doing so would violate their licensing agreement with Dolby Labs. Keep in mind that it is a licensed product. Changing it means you can no longer call it PLIIx, assuming Dolby even allows you to mess with their code.

Jester, I do have a Monster HTS-5000. I use it even though I doubt it's really necessary. I originally had it plugged into the Pre Amp outlet (with Analog filtering). I tried the Digital filter, as you suggested, but it didn't help. I used the Kung-Fu channel for testing. Analog filter, Digital filter, or directly into the wall (on a dedicated 20 amp circuit) all produced the same results. Both PLIIx and DD EX would re-route the side surrounds to the backs (as described by Sanjay).

Sanjay, then I guess it will require Dolby to fix the problems...maybe PLIII I wonder if Lexicon's LOGIC7 does a better job?

What!?! Plugging it into the "digital" outlet didn't change the way PLIIx operates? That would be useful; maybe some sort of processing that compares the incoming channels to the number of speakers you have configured and fills in the blanks using information already in the recording. Like a scaler, except for audio. It used to work the same as PLIIx originally, but Lexicon changed it last year. Ironically, the "new improved" version of LOGIC7 showed up in Harman/Kardon receivers before Lexicon processors.

When it extracts common information from the front L/R channels and steers it to the centre, the extracted information doesn't replace the discrete centre but is combined with the discrete centre.

In the case of the 3-channel material you were listening to, the extracted centre channel (which was silence) would not have taken the place of the discrete centre but instead would simply have been mixed in. End result: combining a silent signal with the discrete centre would have still allowed you to hear all the contents of the centre channel.

Meanwhile, out-of-phase info is still extracted from the front L/R channels and steered to the surround speakers.

Sanjay,

What can I say, it worked for me, and I had the exact issue that you described. Happened with DVD and DVR. Most reliably on the intro to Deadwood.

I'll consider myself lucky I guess?