I owned the RX-V1600 and it was able to apply PLIIx to a 5.1 PCM source, but the RX-V1600 was not capable of accepting 7.1 PCM, this is per my own experiments, and per Yamaha. I'm not sure if the RX-V1700 can accept 7.1 PCM over HDMI, but it should definitely be able to apply PLIIx to a 5.1 source for a 7.1 experience which is very good. I use PLIIx for everything that isn't natively 7.1.
Hey that's interesting. From what I can remember from my AV meanderings is that the opposite is usually the case. Specifically, older receivers can handle 7.1 PCM, but might lack the processing power or software/FW to matrix. Just my impressions.
I know the RX-V1700 has 8 ch. analog inputs, so those could also be used for 7.1 PCM if it can't be done over HDMI, but I'm pretty sure his blu ray player doesn't have analog outputs.
His BDP does 7.1 mch analog no problem. For good measure, it can bitstream and decode all of the relevant formats, and can also downmix these to 2ch PCM.

Seriously does it have to be this difficult? Reading this post I see all these kind people trying to bash their heads against the HDMI wall so that this guy can get a better audio experience. It is like arguing over what the book of Revelations really means. Maybe the engineers that came up with the HDMI spec were playing RPGames at the same time..."You have to have the golden sword or you will get lossy audio" ...I am glad you guys are here because I am sure I will be reduced to tears when I buy a receiver this month...please stand by...x
Actually, with all of the complaints about HDMI, at least it worked from the get-go with version 1.0. A lot of people mistakenly thought they HAD TO HAVE 1.3, etc, and simply didn't know that 1.0 is good enough to handle lossless audio, simply assuming the player can decode the formats. Again, even though there are probably a lot of things one can complain about, I hope all other future formats work properly from the get-go.
For instance, while 1.0 worked fine for audio at the beginning, a lot of HDMI TVs could not accept 1080p, even if touted as a 1080p TV. Now that's baloney. I have no idea what kind of clusterhump 3D may or may not present us with.