Thank you for your response. I was about to give up on Audioholics because my system sucks and I'm an idiot. All of which might be true, but still hard to hear considering I came here for help and to learn more about the hobby.
To answer your kind questions: My primary listing source is a basic Sony DVD/CD player connected via Toslink to the AVR. When listening to music (which is my primary interest), I listen in two-channel mode with the subwoofers active. As you know, when set to Pure Direct, the subwoofers are de-activated, and the mains receive the full band-width, which is equivalent to running them "large"? I'm pretty happy with Pure Direct: the bass is clean and the vocals have depth, but the subs are de-activated which is a bummer.
I'm not as discriminating when listening to home theater or other sources (i.e. Pandora), so I'm honestly not sure whether this problem is occurring in other modes.
I do think the problem resides with the AVR. This is my second Yamaha. My first Yamaha never seemed to work properly...