When you are using one of the Red October settings, MC will properly decode digital surround audio formats*, and send them out via PCM. They will still be decoded to "true surround" (with discreet channels, not upmixed like JRSS does with stereo), but you have the benefit of being able to still use MC's DSP for room correction, normalization, EQ, and all that.
However, the Dolby Digital or TrueHD lights on your receiver won't light up because MC will be sending out PCM over HDMI, or out to analog outs on the sound card. Assuming you are using HDMI out, that's not really bad. HDMI can send at least 6 channels (maybe 8, I'd have to look it up because I don't have a 7.1 speaker set) of full-quality uncompressed PCM audio. It is no worse than TrueHD or DTS-MA to use multichannel PCM, so long as the decoder filters are working right. But it annoys some people that they have a nice receiver that has fancy decoders that aren't being used.
On the other hand, if you do have a nice receiver, and you've already done your room correction and EQ there anyway (so you're not using those fancy effects in MC's DSP), then you can "bitstream" the formats directly out over HDMI. This sends the undecoded audio stream inside your video files directly out to the receiver without decoding it at all, and lets your receiver do it. Enable this in the Options -> Video -> General Video Settings. This is particularly handy if you have an older receiver that doesn't have HDMI inputs, and you only have Optical/Coax SPDIF inputs. Since SPDIF can't send 6 channels of uncompressed PCM audio, then it would be best to send the raw Dolby Digital or DTS directly to the receiver and let it handle it (rather than have MC decode it, DSP it, and then re-encode it to lossy AC3 again).
If you are using HDMI out, then it lights up those pretty DTS-MA and TrueHD lights on your receiver, which might give you a warm glow in your belly since you spent all that money.
Either way will work. JRSS only upmixes when it has to, not when there is a true multichannel source there.
* I'm not actually 100% positive what the status of DTS-MA and TrueHD decoding is in Red October out of the box. In the old days, you had to copy files from an installation of a BluRay decoder over into the LAV Audio directory to get this to work. That may not be the case anymore (or maybe TrueHD works and DTS-MA doesn't). I don't know. If you are curious, it would be best to get a comment from jmone or nev.