2) When upsampling is engaged with an analog source, my understanding is that the signal is converted from analog to digital and then upsampled just as would happen with a digital input before conversion back to analog for output.

3) "DVD-Audio" refers to the high-res audio format that competes with SACD - it uses an audio format called MLP (Meridian Lossless Packeting) that provides a lossless audio format. As you've guessed, it is a fundamentally different format than what you're used to with DVD-Video. You need a special player to play back a DVD-A or SACD disc, and those players have to include 5.1 analog outputs because that's the only way most people have for getting access to the MLP audio on a DVD-A. (There are a few ways to get a digital signal out of the player for DVD-A and SACD, but they all took years to get approved for the applications and none have been widely adopted.) DVD-Video (which refers to DVD movies, many concert DVD's, and so forth) uses Dolby Digital with DTS as an option. Both of those formats can pass over a digital audio cable (optical or coaxial) just fine.