A digital connection should not be needed for "Stereo Sound" or "Surround Sound". It would only be needed if it said something like "Dolby Digital" or "Dolby 5.1"

Personally, I have found PLIIx-C setting to be very good for most TV shows, even if there is no explicit matrix encoding. I never get a collapsed to center sound field except with old PL (which really should not even be offered as a option on the menu). I would be very interested to hear the resolution to the problem (since it doesn't make sense).