You got it. I don't have a DVD player at the moment, so I use my PC to play DVDs. What I do is, i use the SPDIF on my audigy card to output the sound in PCM (i can double check) to my receiver. The receiver shows it's getting 5.1 channels and I believe the Dolby light comes on (I can double check this, once I go home). So I always assumed that 5.1 channels were somehow being encoded in the 'raw' PCM format and sent to the receiver who knew how to decode it.
But it sounds like you're telling me that the PCM is only two channels, not multi, and that the receiver is in fact doing some 'up conversion' to get the other channels? Doesn't seem right though, because whenever I get two channel output from the SPDIF, I always see only two speakers light up, not the 5.1 speakers.