So in order for DD-EX to function, there must be 2 front, 1 center, 2 rear surround, 1 rear center, and a sub, is this what DD-EX is...6.1? So if I only have a 5.1 system the amp should detect this?
If you tell the receiver you only have 5.1 speakers - whether it figured that out itself via auto-setup or you manually go into the speaker setup menu and select Yes/On for the speakers that are actually connected - then the DD-EX decoder will not be available, nor will PLIIx. You can't use a decoder that creates more channels than you have speakers.
So if I am watching a movie and I select the option for DD-EX (in the sound setup of the DVD), is it outputting that to the receiver but the receiver knows that configuration does not exist so it is smart enough to use DPL II in place?
The 6th channel is matrixed into the surround channels so the receiver will most likely use the straight DD decoder. If you had the surround back speaker connected and told the receiver surround back = Yes then you could press the surround button to change to the DD-EX decoder or it would automatically select it depending on the settings I described earlier (auto, always, never).
PLII converts 2 channel analog or digital signals to 5.1. If you select the DD-EX track from the DVD, it's already 5.1 (the 6th channel is simply not extracted) so PLII has nothing to do and it should use the straight DD decoder.