I think bitstream is what was meant. Bit rate is the 'speed' at which the bits arrive; eg., 2 channel PCM off of a CD would be transmited at 1.41 Mbs.
The only difference between choosing bitstream vs PCM is which device is going to do the decoding. If you choose bitstream, the receiver will do the decoding and subsequent conversion to analog. If you choose PCM, the player will do the decoding and the receiver will only perform the conversion to analog.
If the receiver is capable of doing the decoding it is often better to use bitstream because the receiver may have other features that work on the raw bitstream (like Dynamic Compression, aka 'Late Night' mode).
