I'm using the ARC input into my 975 from my TV instead of using the 975 to switch sources.

My TV allows the selection of Dolby Digital corresponding to ARC 3.2.1 on the 975.

Would I be getting better quality by having the 975 do the decode?

Situation 1:
DirecTV (HDMI) --> TV --> HDMI (ARC) 975

vs. Situation 2:
DirecTV (HDMI) --> 975 --> TV

I would expect a more flexible ability to decode anything Directv throws at your system with the 975. I am not sure that the processor in your TV is as capable of fully decoding a 5.1 signal coming for the HD channels of DTV. Bear in mind that although DTV says all their HD channels are 5.1 audio out that is a capability statement. Actual audio output will depend on what you are watching. There are many variations of "Dolby Digital" and the capabilities of each are quite varied. Maybe your TV can decode all the various permutations but I doubt it can do it as well as the 975. The 975 is designed to be able to deal with all the permutations.

Having the 975 process things did indeed make a significant difference. All channels have significantly crisper response.