Hi Simp,
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I can now select Dobly Digital EX, even on sources that are encoded only as DD5.1. How can that be?
Because EX soundtracks are 5.1 discrete channels, just like DD 5.1 soundtracks. The processing doesn't know the difference.
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Does the 990 just create the back surround channels out of the two descrete surround channels? If so, is this faux channel "matrixed" or descrete?
The EX circuit extracts correlated (in-phase) mono information from the L/R surround channels and sends it to the two rear speakers. This surround-back information is also actively cancelled from L/R surround channels, so that it's not heard from the wrong direction. The leftover stereo surround information is sent to the two side speakers. That's how you get different sounds at your left, your right and behind you.

After EX decoding, none of the resulting three surround channels (left, right, back) have the same content as the original two surround channels on the DVD. Therefore none of them can be considered discrete anymore; all three are matrix derived.

However, keep in mind that 100% the information you hear from the surround speakers came from the original surround channels. None of it was "created" by the EX circuit, let alone the 990.
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Seems to be kind of faking it to me. If a sound source were encoded in DD EX, I could see the processor spreading that mono back surround signal across the two back surround speakers. But there's not even a matrixed channel there to begin with... I don't get it.
When you sit in the sweet spot between two speakers, mono sounds will phantom image in the middle of the soundstage. Similarly, when you sit exactly between a pair of surround speakers, mono information tends to phantom image behind you. However, if you move out of this narrow sweet spot, this phantom rear image collapses to the nearest surround speaker.

As described above, the EX circuit removes this information from the side speakers and puts it into the rear speakers. Now, no matter where you sit in the room, those sounds will always image behind you (as intended). No magic involved, just a pair of speakers physically located behind you (makes it difficult for those sounds to come from any other direction).

This the same directionality as before, but now enjoyed by off-axis listeners as well. You can call that "faking it", but I prefer to call it what it really is: stable imaging.

Honestly, I can't imagine why you wouldn't use EX decoding on all 5.1 sources. Unless you had something better; which brings us to...
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That being said, why would I choose that option when I have Dolby PLIIx available to me?
You wouldn't. That's why Dolby themselves recommend using PLIIx processing instead of EX decoding, even on EX-encoded soundtracks.
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Dolby PLIIx supposedly creates two descrete back surround channels out of the surround channels right?
With PLIIx processing, the two surround-back channels are indeed stereo, but they're not discrete. As with EX decoding, it's only certain portions of the surround channels that are sent to the speakers behind you. The remainder of the surround information (with the surround-back information cancelled) is sent to the speakers at your sides.

If you were to look at any one of these resulting surround channels, none of them would exactly resemble the original surround channels on the DVD. So again, none of them can be considered discrete. Two discrete surround channels are input, four matrix-derived surround channels are output.

Just as EX decoding maintained the intended directionality of the original surround channels, PLIIx processing also takes its steering cues from the source material.

Sounds that would have phantom imaged over your left shoulder are steered to the left rear speaker. Sounds that would have phantom imaged over your right shoulder are steered to the right rear speaker. Sounds that would have phantom imaged directly behind you are sent to both rear speakers.

The only difference is that listeners are no longer limited to a sweet spot, since directionality in the surround field no longer depends on something as unstable as phantom imaging. With four surrounds spread out in the rear hemisphere, if a dinosaur roar is supposed to be heard from the left rear corner of the room, everyone will hear it from that direction.
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Another thing that I found strange was that I can add Dolby PLIIx to any DTS encoded source.
Not so strange. Dolby designed PLIIx to be format agnostic. Depending on how it's implemented on a particular pre-pro, PLIIx can be applied to: DD, DTS, DVD-A, SACD, PCM, even analogue.
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My last comment is regarding PLIIx Music. I rarely, if ever, listend to music in anything other than Bypass mode using the analog outputs of my Denon 2900 DVD player. I decided to try using PLIIx (still using the analog inputs) and really enjoyed what I heard. I spread the center channel evenly across the two fronts and turned on Panorama, but left it at that. As I mentioned, I liked what I heard. (Sorry 2-channel purists...)
No apologies needed. It's been something like 14 years since I've listened to 2-channel music using only two speakers. PLIIx actually works quite well with all sorts of music. Try the first couple of minutes from the title track of Michael Jackson's 'Thriller' album.

As with the surround channels of 5.1 soundtracks, PLIIx actually does a decent job of respecting the original directionality. The only information sent to the centre speaker is correlated mono info, which would have naturally imaged there anyway. Uncorrelated (out-of-phase) information doesn't really image in the front soundstage; it kinda sounds more like it's coming from all over. And this is the specific information that is extracted and sent to the surround speakers.

The controls of PLIIx Music mode let you adjust the sound to your personal tastes. They're very useful, like when switching from acoustic jazz to studio pop to classical. You can dial it in to sound as subtle or as exciting as your mood (and the music) dictates. Don't believe that stuff about surround processing suddenly making a trumpet blare from behind you. PLIIx is a lot more ambient and tasteful than that.
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Sanjay