All inputs, including the 4 RCA stereo analog in are digitized, save for the aformentioned 7.1 input wich is true bypass. If you have the system set for stereo + sub, it will do the crossover function in DSP but will apply no other processing (the Dolby and DTS stuff are off).

So if you want the cleanest signal path, your best bet is to use Coaxial or Optical between your player and the 976 and run in Direct mode.