If you are not doing any DSP processing to the file, there is no difference between 24-bit and 16-bit outputs when playing back a 16-bit file. The data is just padded with zeros.
If a 16-bit file is output as 24-bit and sent to my Benchmark DAC2, which actually analyzes the audio stream, it will light up as 24-bit briefly because it's receiving a 24-bit signal, and then after half a second the display switches to 16-bit, because it's detected that it's 16-bit audio in a 24-bit stream.
However, once you start using DSP - or even just using the volume control - it stays as 24-bit, because Media Center will use as much precision as possible when processing the files.
If you don't increase the bit-depth to something greater than the source when performing DSP, it becomes a lossy process.