I have gone through this a bunch of times, direct mode, stereo, ect to me avr's dont play music as good as a more direct method.. Not sure why... Its not even that it sounds bad, just not the same... In music I noticed if you keep the signal path as simple as possible you get better sound... For example when I had my 2000+ $ yammy avr, I tried all the settings for music and I could never get it rite, it either sounded lifeless or like someone did a bad job eq'ing it and the mids were too pronounced... The lows and highs seemed to be about the same for some reason {bass was light without the sub and heavy with it {but with it could at least be adjusted}...
So after some playing around with it and not being happy I had the salesman/tech come to the house and see what i was doing wrong.. He played with settings for almost a half our and had the same result, he tried more things that me, even moving the speakers around 5 or 6 times... Nothing helped... So he first gave me the idea, he said lets try an integrated amp with a cd player and make sure it is not the room or the speakers...
We did and it sounded perfect.... So the i-amp he brought over was $7K and I obviously didn't buy that one BUT I started with a less expensive model and I used that amp to power my mains with the cd player not running through the avr.. It worked, then shortly after I built my first music only system, and I WILL NEVER go back to an all in one.. I am not very serious about HT, I run my ascend/HSU setup and it sounds awesome for movies, but for the life of me I can't make music that I am happy with in there...
My taste in sound hasn't changed but the equipment I use to get me there has, I used to be in love with towers, they are impressive and look expensive and sound good, BUT then I added subs and after some trial and error I figured out how to cross them {as low as you can with 95-100 being the highest} and that more subs is better for sound {you will never pickup the sub if there are at least 2, with one placement is tough and you can tell the sub is making the lows with 2 they are invisible}... Then I discovered bookshelfs for myself, with a pair of subs is music magic...
So keeping the signal path super short works for me, no eq, no video circuitry, just source and amplifier {have the volume control in either one, either a cd player/dac/mp3/ect with a volume control or an integrated amp. I also use a preamp if I am going to have multiple sources.. Others like the avr's to power music systems so it all depends on your ears, I belive the difference is in the processor because I have used the internal amp of one of my avr's to power a pair of towers before and they sounded good {I unplugged the "U" jumpers and plugged my pre directly into it bypassing the internal pro}...
So anyway, don't beat yourself up about it, its probably the avr not the settings, although I would try every setting, maybe you can find something you can live with...