Hi I have a denon avc-a1HD :
optical out is limited as it has not enough bandwith for HD sound formats (DTS Master HD - Dolby True HD) so you're best connection would be hdmi.
sending in hdmi you'll have two choices :
- bitstreaming in options>audio>bitstreaming
- pcm options>audio>no bitstreaming.
Search the forum for the difference between the two....it's often a technical question with some saying sending pcm is better. I find the denons (also the 4312) does a good decoding job so do bitstream. Another good point when bitstreaming is that you see on your AV what format you are using which is valuable for bluray/DVD concerts holding the same audio track in various formats.
Interestingly if you choose to send pcm you could upsample dvd and bluray in setting options>audio>DSP to upsample everything to 192/24 as that's the max the denon accepts. Let your ears be judge.
To make sure all is set right in Windows as well. You'll have to check under the audio of windows (playback devices) to select your denon which should appear select it and then under configure make sure you select your speaker configuration accordingly (5.1 or stereo). Under properties then you can check if all formats as supported by your denon are displayed.