We are all speculating and hypothesizing about what is actually being done in AVRs.
But let me see if I can clarify my experience with Analog Inputs.
I use an external mixer and microphone. This is Analog. When I use DSP, Tones, EQ, etc., the Analog Signal is Converted to Digital. We all understand this.
So when I use DSP, Tone, EQ, etc., there is a
DELAY in sound. When I speak into the microphone, there is a DELAY from the time I speak to the time it comes through the speakers.
When I use Stereo Mode with LFE + MAIN, there is a
DELAY in sound. This tells me that in Stereo Mode, their is Analog to Digital Conversion, as expected.
When I use
DIRECT Mode with LFE + Main, there is
NO DELAY in sound at all. This tells me that there is no Analog to Digital Conversion in DIRECT mode with LFE + MAIN.
I could be wrong, but this is my hypothesis.