To my knowledge, the 7.1 input is purely analog in to out, with no DSP. The four stereo analog input are always digitized, hence the DSP is applied/available, including crossover, EQ, time alignment and bass management.

So if you intend to use DSP, it is indeed best to use a digital input. The 976 D/A are plenty good imho.
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Eric Desrochers
http://www.blu-ray.com/community/gallery.php?member=Deromax

" I hear no highs, I feel no lows, it sounds like crap, it must be Bose "