no there shouldnt be any picture loss.
as far as right now, if your receiver has 5.1 analog in you can utilize the 5.1 out on the blu player and enjoy the hd codecs.
upscaling is gerally referring to dvd upscaling.
there really should be no reason for two hdmi outs. if your like me and sometimes want to play something without the surround, then i use the component from my ps3. still get a good hd pic.
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