Hey guys.
Another thought: I'm also using my 360 as my CD player. When I play CDs (which don't have the same "peaking out"), the display on the receiver still shows the signal as being Dolby Digital. Also, the input is the same as when watching DVDs (optical), since the player is the same. Would this rule out the processor, then, since the processor seems able to do CDs fine but not DVDs?
Can't run things through the all-analogue method, as I have no SACD player. The receiver is just over a month old. Bought it from Audioholics!