Let me clarify, for the CD input setting, the surround mode STEREO sticks - that doesn't change. The issue is, upon playback, the mode switches from STEREO to DOLBY PLIIx-C and I have to manually toggle back to STEREO. This is the behavior that's driving me up the wall. And, it only happens when the 1070 is first powered up along with the Squeezebox. Once playing, after having to switch from PLII back to STEREO, all subsequent tracks play back in STEREO. When powered back down, the scenario begins upon next power up.
Maybe it's something unique to the Squeezebox and should try the digital out of a CD player as a comparison.

BTW, a big thanks to everyone's input, help and suggestions so far. I do appreciate them!!!