I'm going to have to do a little research over at Dolby's site - curious to know what the installation recommendations are for these speakers (height off floor, etc.).
Clever! Of course, all we have right now is the 990 (no first-hand experience with the 997 and no details / manual), and the 990's second zone is an independent analog pre-amp with no ties to the DSP or DAC. If the 997 follows the 990's lead in that regard, there would be no physical connection available to steer data from the DSP to that output. You're right, though - if there is any sort of connection there, the second zone could be made to offer a "PLIIz mode" that disabled the second zone and instead made it into the last two channels of a 9.1 pre-amp.
I wondered about this, too. After all, the 990 is one of a number of processors that do exactly that with the 7.1 analog input.
This may be "un-purist" of me and may be partly because I've needed to give my side surround speakers an upgrade for a few years now, but I am a little less picky about extra manipulation of my surround channel signals than I am of my fronts. An A/D/A cycle on those after the processor would be less of a concern for me, assuming it was done clealy. A four-in/six-out box could work if you gave it decent ADC and DAC chips. You might include a switch to select 5.1 or 7.1 operation (to tell it whether to expect anything on the rear surrounds), although there would still be the potential for a 7.1 setup to play back purely 5.1 tracks at times. And I'd think that if PLIIz is functionally similar to PLIIx, an older-generation DSP chip like the Cirrus 49400 could handle the processing requirements pretty comfortably (especially with extra duties removed in a scaled-back application such as this).