Yes to both.
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I beleive PCM is 2-channel in this case, Dolby is multi-channel. When Blu Ray players output their multi-channel soundtracks from the front-center-surround outputs on the back panel, that is a PCM signal, I think, but in this case I would think the PCM is 2-channel only.
You know when you're watching a prime time show, like CSI or whatever, and there is an emblem that fades in on bottom that says "broadcast in surround sound?" That is when you need to see if your TV can be set to only output 2-channel (PCM) signals from the optical connection.
The Benchmark is my choice with no modifications. However, I recently found this thread, http://www.diyaudio.com/forums/digital-line-level/70412-upgrading-benchmark-dac-1-a-25.html. There seems to be several threads here that boils down to changes in the capacitors, power supply possibilities, and op amp upgrades. In summary I did the following changes:
LME 49720 to replace the NE5532s
OPA1612 to replace the OP275Gs
ELNA caps for the coupling caps
Add a 10uf 25V tantalum capacitor on the 5v power supply (rather then changing 30 caps)
Replace the 7805 regulator with a DEXA 70908
The op amps helped but the Dac Magic was still lacking in soundstage. Once I changed out the coupling caps and the 7805 the DAC was transformed. For the first time the wife factor used the word muddy and it was in reference to the Benchmark!! A $300 Dac Magic, with supposedly less then 5 hours of play time, and less then $80 worth of parts put a Benchmark (in use for 9 months) to shame. For listening I am using the RCA outputs.