Alex -
I don't think I've reached the same point you may have, but I empathize. Just an FYI, I have heard this loud distorted blaring sound when I would switch Dolby/DTS modes. It wasn't loud enough to do any damage and I think it was relative to the volume I had the 1070 at when it happened.
I have to admit, although I'm still an Outlaw fanatic at heart, I wasn't thrilled that I applied the firmware per all the advice of the Outlaw folks on their site, the upgrade bombs, and I'm left bucking up to return the unit to them for repair. {edit: let me make it clear, I can understand this is the 'cost' of ownership, and I didn't lose sleep over it. But WAF can be a little harsh on the toys under these circumstances. And I see the point, even though I'm biased toward my 1070.)
I can only hope that when I receive my unit back today, that most of the problems are resolved. While none of them were show stoppers prior to the failed upgrade, they were nuisances that, coming from a software background, should have been resolved.
I know I'll have to just suck it up until it's time to replace it, but I don't want to do that for some time. Let's just say I'm not 100% satisfied (more like 98%) and I'm a little spoiled. Also helping me is the fact that the 1070 was a gift. Had it been my $1K, I might be a little more irked. I can deal with it assuming the problems don't worsen.If they do, I may be responding to this again. But I truly hope that the 1070 is my receiver for some time to come. I do love the 1070 when it's working right and I think my 1070 was definitely less buggy than yours.
Good luck with your setup. If you're really upset about it, I would contact Outlaw. I would think they would hear you out. You seem to be a reasonable guy and have been patient through the woes.
_________________________
Model 1070
Toshiba HD-A35 & Pioneer BDP-51
Tivo Series 3
Elite 50" / Aquos 32"
Squeezebox Radio
Stereo Setup:
NAD C326BEE (50Wx2)
Elite DV-47Ai Universal SACD/DVD-A
Citypulse DA7.2x II + TXCO DAC
B&W 685s
JL Fathom F112
Denon AH-D2000 Headphones