Use the optical or coax digital connections (either one but not both) if you want your AVR to decode the signal. If you use the analog 2 channel you are allowing the universal player to decode the signal and the AVR is only amplifying. Similar to the 5.1 connections going to the AVR. No processing is done in the receiver.
As to whether or not you should use optical or coax for the digital signal, you will find differing opinions. I think as long as you are using a decent optical cable (no leakage or kinks) you as good off as the digital coax. Not sure what player you are using but your bass management options are better with the AVR than many players. Another reason to use digital feeds. Now that I think of it, I cannot come up with a good reason to use 2 channel analog connections with the possible exception of straight or pure direct modes, but even then I don't think so. I prefer 7 channel stereo or PLIIx Music most of the time.