when using 7.1 direct input on the 990 i think i cannot apply any surround modes like dolby to the incoming signal right?

also, is it possible to upsample 7 channels of incoming stereo sound from blu rau movies with pcm 7.1 tracks?

The 7.1 direct input does not allow any DSP - that includes upsample.

The design expects that, since you are using 7.1 analog direct input, all the decoding already took place off the unit. If your unit is letting you set DD or DTS modes while in 7.1, something may be wrong.

As far as the upsampling question: If your speakers are set to small, there is an A/D-D/A conversion that takes place for bass management purposes. I don't know if you would consider that upsampling - some people may not be too fond of the idea and think of it as a downgrade. If your speakers are set to large, the signal stays analog throughout (if I remember correctly). That, as far as I know, is the only way to tweak how the 990 handles 7.1 input.

Not only that, but additional matrix processing such as Pro Logic IIx would be problematic because not only would it require an A/D/A conversion (which is something the 990 can do) but it would also require assuming how many active channels exist in the incoming signal. Just because you connect 5.1 analog out of a player, doesn't mean all six channels are active all the time - you could have a Dolby 2.0 disc or a DVD-Audio disc with 4.0 audio or something else.
If gooomz is referring to the 990's "Upsample" mode (the specific processing mode), it's not available. You are right, though - when speakers are set to "small" the 990 does perform some digital processing (bass management/channel delays/channel trims).