First question: how is your audio connected from HR10-250 to the 970? You will need to have a digital audio cable (coaxial or optical, doesn't matter which) to the 970. You will also need to have the HR10 set to output a digital bitstream in order to deliver that Dolby Digital 5.1 signal to the 970. If it is set to "PCM" then it will decode the Dolby Digital (be it 2.0 or 5.1) and downmix to stereo, then output a PCM stereo signal.

I'm not so sure about the second question - no obvious explanation is occurring to me. Does it happen when switching from an analog video source (XBox, PS2, or Sony DVD) to the digital video source (HR10), or does it happen when switching between analog sources as well?