I guess I'll chime in on this one for a sec. Sorry if this gets long. I have an Alpine IVA-D100 with the 701 (but unfortunately my stereo has been acting up a bit lately so I've got things kinda pulled apart right now so I can't confirm what I am about to say - this is more from my knowledge of home stereo). But Dolby ProLogic is not a true surround sound format. What it does is simulate surround sound out of a two-channel source. If you are running a DVD in Dolby Digital or DTS, that is not a 2-channel audio source, so ProLogic has nothing to do with this discussion. Obviously you need the optical cable to transmit the digital signal from the HU to the processor. I'm pretty sure that the HU decodes the audio signal (from the compressed Dolby Digital/DTS format) and sends the uncompressed data to the processor. The processor then outputs the signal via the analog RCA cables to your amps (pretty sure this is what the two units do without looking at the manuals - pressed for time right now). So you need to make sure you have the HU set to have digital output on and you want to select Bitstream as the output (not sure exactly where this is in your particular head units). This will then send the decompressed digital audio signal to the 701. I'm pretty sure the PCM and Dolby ProLogic selections are only for 2-channel audio. Although, if they're not, you would want it to be on PCM which would take in the full audio signal (sidenote: PCM transmits the full digital audio signal at a much higher bandwidth than allowed by DVDs, hence the compression with DD or DTS. The compression is used with DD and DTS to allow a full discrete 5.1-channel signal which wouldn't be possible to stream from a DVD with PCM, but this is possible on HD-DVD and Blu-Ray due to their increased bandwidth - which is one of the benefits of using this media).
Once I have my car fully back together I will check everything out and post an update. I just wanted to clear up some of the confusion between DD/DTS and Dolby ProLogic. If this has been completely unclear, let me know and I will try to explain better.
You're right, but I was under the impression all along that if you sent a Dolby or DTS signal (set in the DVD menu) to the processor (which is set to Dolby PLII) that it will not try to imitate a 5.1 signal using the stereo signal given, but instead will still process and play the 5.1 signal as intended. Like, you give me dough, and I turn it into bread and make a sandwich, but if you give me bread, it just makes my job easier and I can still make the sandwich. Ya know, I may be totally wrong on this one. I've been running my setup for a year, and have played with it a lot, but I may have had the wrong idea.
So, are you saying that you can set it to 5.1 in the DVD menu, and then keep the processor on PCM mode, and you will still get true 5.1 playback? I was messing wirth mine again a little while ago, and if i have it set this way I still get decent output, which conflicts what I said earlier. However, no doubt about it, if I set the DVD menu to PCM and the processor menu to PLII, the output is terrible. By the way, I did notice that if I have it set this way, there is no sub output with the rear speakers set to large. I just never run mine with the DVD set to PCM and then processor set to PLII, because the overall output is crap. If what you say is true, shouldn't it "simulate" surround sound and still sound decent?
It's all so confusing to me now. I just know that if I set the DVD menu to PCM, and the processor to PCM, it sounds great, but it's not 5.1. If I set the DVD menu to 5.1, and the processor to 5.1, it sounds great, although the volume needs to be adjusted as I mentioned earlier with the whole DVD level adjustments.
I have never seen any kind of setting for "Bitstream" on the W200, W205, or the H701. You lost me there.
On my 7.1 home theater system, I play 5.1 movies on Dolby Pro Logic IIx. It "converts" them into 7.1. Sometimes I use DTS if the movie was recorded that way. As far as I can see, there is not a setting in the H701 to choose DTS or plain Dolby Digital as the playback format. It is PLII or PCM. I'm willing to learn if there is a better way than what I've been doing.