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I've read it twice now and I'm still confused on these very points. This player seems to behave differently than most other hardware (why I wanted to make sure of what HDMI version it had). Not trying to be difficult... just trying to make sense of how this is supposed to work. Ok... so it's...

Sorry! I'm still confused :) How then does one opt for the player to decode or for the outboard device to handle advanced audio decoding? Or is this player not HDMI 1.3 (and therefore converts all advanced bitstreams to PCM for tranmission over HDMI 1.1/2)?

False. Setting output to "bitstream" merely *allows* bitstream signals to pass out natively. Your actual PCM soundracks remain as PCM... or *should* (they do in every other player).