PCM or Bitstream from Blu-ray Player
In terms of audio quality, it doesn't matter; the results should be identical either way. I suppose there might be a slight difference between the decoder in the player and AVR; to find out, all you have to do is try it both ways and see if you hear a difference. I bet you won't. And you shouldn't have to tell the AVR which stream to expect; it should detect and process the stream automatically.
The main reason to use PCM instead of bitstream is that with PCM, you can hear any secondary audio that might be on the discthings like commentaries during the movie and sounds when you click on a menu item. In most cases, if you select the bitstream output, the player does not mix the secondary audio with the main soundtrack, so it is not sent to the AVR. Some players offer a "bitstream/re-encode" option that re-encodes everything to standard DTS or Dolby Digital, and you can hear the secondary audio in this case, but I don't recommend it because the lossless audio is converted into lossy audio, lowering the sound quality.
Home Theater reviewer Tom Norton generally uses the bitstream output, because that way, his Integra pre/pro indicates exactly which format he's listening to. If he selects the PCM output, the pre/pro only indicates that it's multichannel. Your Onkyo AVR does something similar as seen in the drawing of its display above, so if you want to be sure of which format you're hearingand you don't care about the secondary audiouse bitstream. Otherwise, use PCM so you can hear the secondary audio.
If you have an A/V question, please send it to firstname.lastname@example.org.