Help an audio n00b out with his PS3 and Onkyo 605

[Phatferd]

Sorry for the ignorance, I really don't know jack about audio. I really want to start getting the most out of my Blu-Rays. I have a PS3 and want to purchase a cheap Home Theater. My fiance (saving up for a wedding) has allowed me to spend $500-600. I know this isn't much, but I know I can get a decent beginner setup with this kind of money and replace the speakers over time. We will be living in an apartment, so I don't really need anything too crazy either. I think a 5.1 setup would suffice and if we move into a bigger place, I can get 2 extra surround speakers.

I have asked similar questions about the PS3's capabilities, but I really don't understand a lot of the "tech" talk. Below I will try and outline my questions and what I think I know and hopefully some of you who are willing can give me feedback/answers and dumb it down as best you can to get through my ignorant skull .

Lets take We Own the Night for example 1:
It plays DD True HD 5.1
I am under the idea that the PS3 can internally decode this and send it out via a toslink cable (can it be via HDMI?) into the 605 and pass it through to the speakers. The PS3 is doing all the decoding and the 605 is basically the middle man to the speakers. Would I bitstream this or Linear PCM?

Lets now take Con Air for example 2:
It plays Uncompressed PCM 5.1 Surround
I am under the idea that this doesn't have to be decoded because it is the raw audio file and to get the full benefit via my setup I would have to set my PS3 to Linear PCM and send the audio via my HDMI into my 605.

My last 2 questions are:
If something lke 3:10 to Yuma is 7.1 uncompressed PCM can my setup handle this? I think what happens is my PS3 sends out 5.1 PCM to the 605 and the 605 takes that and makes it into 7.1 PCM the best it can.

I assume that anything just DD 5.1 will be set to bitstream directly into my 605 via HDMI.

Please let me know, I would greatly appreciate it.