Well, I guess you just either have to use bypass or 7.1 direct, insuring that you don't have any other "system level" setting turned on that adds additional processing into the mix. It's obvious to me that theater compensation is doing something to the signal regardless of the processing mode. I don't know if there are other settings that have similar negative effects.
I tried theater compensation on the 7.1 direct inputs, and it too was affected.