I think we may be talking about different menus, since the behavior you are experiencing is so similar to what I ran into before. The DVD menu (accessed from "menu" or "top menu" buttons on the remote) is part of the disc, and would not include the kind of setting I'm talking about. Separate from that menu, the player should have a setup menu (possibly labeled "setup" on the remote, and in some cases only accessible when there's no disc in the player - it depends on the manufacturer) that allows you to set things like screen size (4:3 or 16:9), audio outputs, and a lot of other options that vary from player to player.

On current RCA players (at least the DRC233N ), the player menu appears when there is no disc in the player or when you hit STOP with a disc in. The DRC233N does not include any options along these lines, which should indicate that DTS is always passed via bitstream. It does have an option for virtual surround, which I would recommend disabling if it is present. The player you have is apparently a model year or two older than the 233N, so the menu options are probably different (getting into the menu may also be different).