You're not doing anything wrong. As long as it detects a digital signal, it will default to IIx-c. Even if you change it. Hookup analog connections and set the audio to analog in the input menu, then the setting will stick. Sounds like this will be a big issue. I suggested to Outlaw as well that they make the default mode configurable. I feel if I have a device with digital outputs, I want to use them and configure the surround mode I want. Try hooking up analog connections from your DVD and see if that helps.
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Sparkyfan
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