Yes it does, but the Sony is hooked up via the analog outs and it decodes all formats but the problem is my receiver doesn't apply any of the audyssey settings to the 7.1 analog in. I think it sounds pretty good as is, but I feel like I could be gaining something by letting the receiver decode regular old dolby digital or dts. I would also have to switch the output modes on the sony back and forth which wouldn't be a problem for me, but my wife is another story. I do think the video quality of DVD's is much better with the Sony than the panasonic, so I may have just answered my own question.