Analog for Video3 is Video3's stereo analog input. You can use Video3 with DVI2 and a digital input for watching SD DVD's, but you'll need to select 7.1 Direct for the multichannel analog. Video3 with a digital audio source would also work with the XA2's ability to create a high-bitrate DTS digital signal from HD-DVD's Dolby Digital Plus (and I think from Dolby TrueHD).

The 7.1 Direct input does not support additional surround processing because in theory you have a 7.1 source - there's no processing to do, since all the speakers are already in the mix. In many cases, of course, there's only 5.1, but there's no way to tell that since the signals are analog.