Where's the D-A conversion done when bitstreaming is enabled versus not?
Enabled = on your receiver for any content type that supports bitstreaming (generally, DTS, DTS-MA, Dolby Digital, and TrueHD, though there are probably other weirdo ones that no one uses).
Disabled =
still on your receiver (pre-amp, DAC, or whatever) if you use HDMI out and output multichannel PCM. In this case, MC decodes the audio from the compressed AC3 or whatever format, just like it decodes MP3 and FLAC. However, MC does not do any kind of D->A conversion, the data is all kept in the digital domain. Same goes if you use SPDIF, by the way, though this prevents supporting uncompressed multichannel PCM output. If you use SPDIF out, and you want to send digital surround to your receiver, MC can re-encode the PCM that comes "out of" the DSP into AC3 (Dolby Digital, essentially) before sending it down the wire. Otherwise you are limited to either two-channel output, or bitstreaming with SPDIF.
Disabled, with analog outputs, a USB DAC, or whatever = on your PC's audio hardware, whatever that may be.
So, the answer is, really always... On your DAC. Because it is the physical part of your system that does the Digital to Analog conversion. But there are details in the middle.
