Long post, many questions

[Ascended_Saiyan]

If price is not a main concern, I would suggest the 80GB. I say that do to the media card reader (for extrra storage and more options for photo/movie viewing from camera/videocam memory). These will probably be things you would want to use at some point in the future, so it is nice to know that some of your future interests are covered.

Also, their will be 40GB more space available for storage (it will come in handy). Storing movies and the possibility of recording TV shows in the future (see Play TV functions). It's better to have those things and be able to grow into them than to grow out of something (especially when all that can be covered for a mere $100 extra. That, also, gives you 2 more USB ports AND a back-up SACD player, should your SACD goes out on you.

As for your last question about settings, I'm assuming you have a Bose 321 or similiar system. I would hook up the optical (TOSlink cable) connection to the PS3 and audio system. Let the PS3 auto detect your audio capabilities. Then, UNcheck all the audio options except the 2-channel PCM checks on the PS3.

On the video side, I would just make sure you are set to FULL RGB in the display settings.