I've wondered about this too, do you set your equipment for DTS or PCM, LPCM?
Like my DVD player for instance, has a Digital Output setting for
1. ALL
2. PCM
3. LPCM
Which one do you choose?
I picked your question because I think it illustrates the confusion many people face with this type of question.
I would take 'all' to mean it will pass ANY digital format untouched; in other words that would be the equivalent of 'bitstream' - the player will just read the bits off the disc and send them somewhere else (like to the reciever). The receiving device must be able to recognize the format and decode it properly and if it can, guess what format it decodes it to? If you guessed PCM, you win.
PCM and LPCM (Linear Pulse Code Modulation) are the same thing but in player setting menus have a slightly different meaning. If you set it to PCM, it will take any analog signal or any digital signal it recognizes and decode it to PCM (so eg. analog is converted to digital (PCM) and DD is decoded and converted to PCM). If you set it to LPCM, it will only accept PCM signals and output them straight-through (and you would NOT want that setting if you were going to be playing DD).
At their core, ALL of the current formats are PCM. DD is a compressed format (analogous to MP3, WMA, etc) and in the encoding process discards part of the sound that its model thinks you wouldn't be able to hear anyway, thus achieving a reduction in the amount of data present. When it is 'decoded' it takes all the parts of the single bitstream and sends the appropriate pieces to each respective channel but the result of that decoding is PCM.
So as has already been mentioned, if your sink device (eg. receiver) knows how to decode a given format, you set the source (eg. dvd player) to output 'bitstream' so that the sink does the decoding and you can use other features (such as 'late night mode' aka 'dynamic compression'); otherwise, you set it to 'pcm' so the player does the decoding. If you are feeding a receiver that only has 5.1/7.1 analog inputs, you have no choice other than to use the 'pcm' setting because the receiver is not capable of identifying the signal format and doing the decoding itself.
The sound quality is identical because the end result is the same - PCM.