MC25? Are you using Mac or Windows or Linux?
First, don't use any of the DSP Studio > Output Format settings! What you're doing is having MC convert all media to DSD, which is likely the reason your FLAC files are skipping because your PC isn't powerful enough to handle the on-the-fly PCM-to-DSD conversion. It's even converting all the DSD files (and all DSD conversions go through a PCM stage in the middle, so DSD > PCM > DSD) which is a lossy conversion. So, I'd recommend avoid the use of Output Format settings for DSD if possible!
Like you mentioned enabling DSD bitstreaming would be the way to do.
The PCM light coming on sounds like it's using DSD-over-PCM (DoP) but you can check the audio path in MC to make sure.
If you're using ASIO and your device supports it you might be able to go into MC's Options > Audio > Device settings and uncheck the DSD bitstream in DoP format box and see if it can send native DSD. But if it's indeed sending DoP the PCM light may not matter, since the end result is the same if it's native DSD or DoP in that case. Again, check the audio path and look at the Output on the bottom when using DSD bitstreaming.
More info:
https://wiki.jriver.com/index.php/DSDEDIT: Looked at the 2Qute specs and manual, and it specifically mentions it supports DSD via DoP. How do you have the 2Qute connected to your PC/Mac? If you're not using the USB connection, you might try using that. If you're using Windows you probably also need to also make sure you have the Windows driver installed that they provide as well (especially if you want ASIO), just in case. If using Mac, you might have to open the Audio MIDI Setup app and find your 2Qute and set it to use the highest bit-depth and sample rate, as some DACs need that on macOS to get DSD working correctly.
Nonetheless, if that doesn't work check the audio path, and please post screenshots of it here while trying to bitstream DSD. It should be able to give a clue.
Here's the manual:
https://chordelectronics.co.uk/wp-content/uploads/2016/09/2Qute-User-Manual.pdf