The answer to your question depends on which version PS3 you purchased. If you have the new 'slim' version then you have the option of either PCM or Bitstream for sending multichannel audio to you NAD T765 receiver. If you choose "Bitstream" your PS3 will send Dolby Digital, DTS, Dolby TrueHD, and DTS-Master Audio data streams to your receiver, which in turn will decode them for your listening pleasure. If you choose "PCM" the PS3 will internally decode the audio tracks listed above and convert them into PCM and ship them over the HDMI cable to your receiver.
If you purchased the older 'fat PS3' then your best option is to select "PCM" as the older PS3's can not stream Dolby TrueHD or DTS-Master Audio. The only way to get these 2 formats to your receiver is to have the PS3 decode them and send them in PCM format. This is the option I use as I own a first generation PS3. I have compared the sound of my PCM tracks against other systems comparable to mine that have players capable of bitstreaming all the audio formats I've mentioned and feel I am not missing a thing.
I hope this info helps to clarify things for you. Good luck and be sure to keep your PS3 firmware up to date.
