The issue here isn't actually analog vs. digital at all. You are exactly right that CD's and DVD's offer digital audio (as long as you don't run afoul of copy protection restrictions as found in SACD and DVD-Audio). The digital bitstream from a CD is PCM stereo. An analog connection would
also be stereo, of course. In both cases, the 1070 recognizes the signal as two channel audio. What's happening is the 1070 is taking that two channel signal and applying surround processing. This could happen whether the signal was digital or analog (unless analog bypass were on play, since that bypasses the processing). You can simply use the "STEREO" button on the 1070's remote to change the surround processign mode to "Stereo" (no surround processing), and the center channel will cease to be involved.
My recommendation for setting up the CD input to use the same digital input as the DVD input comes from past experience and personal preference: I use stereo mode for CD listening and surround processing on DVD's, but I use the same transport for both. By setting up a second input, I don't have to manually adjust surround modes all the time - I just pick "CD" instead of "DVD" on my remote, and the CD input is set up to run in straight stereo with PCM stereo sources. Keeps life simple.