1. Correct, at least for a native 7.1.
2. No, they do not, at least not native 7.1.
3. option number two, go directly to Onkyo.
The advantage of using the analogs is that you can now have your lossless mch.
The disadvantages are that you lose out on post processing, flexible bass mgmt, and simply never get to use the rear speakers unless the track is natively 7.1.
So, what I would do is connect both mch analogs as well as an optical. I'd use the mch analogs for lossless mch tracks, and I'd use optical for any track that is lossy, whether that might be bluray or dvd.