Since you are using ARC from the tv to the receiver, I think you’ll find that your tv will send a 2.1 stream to your receiver if you select that option. Your receiver will then take that stream and upmix it to multi channel audio using Dolby prologic or one of the dts settings, but it won’t sound as good as a Dolby 5.1 stream.
See here:
https://www.rtings.com/tv/tests/inputs/5-1-surround-audio-passthrough
Relevant text:
PCM
PCM is an uncompressed audio format, which means it will theoretically have the best overall sound quality, as no information has been removed to facilitate transmitting the signal. PCM is sent unencoded by the source, meaning the full, unpacked ‘instructions’ for what sounds to play are sent directly from the source to receiver, and then on to the speakers.
Unfortunately, this makes for a signal that is more difficult to transmit. No TV seems to be able to pass a 5.1 PCM signal through to a sound system, so sending a PCM signal to or from a TV will downgrade the signal to 2.1 (two speakers + one subwoofer), thus eliminating the extra channels necessary for surround sound.
PCM 5.1 can work with a receiver that supports the format, so if you want uncompressed sound, you’ll need to forego passing the audio through your TV, and instead output the sound directly from the source (one that outputs PCM 5.1) to the receiver. Note that only HDMI can transmit a 5.1 PCM signal. Digital optical is only capable of transmitting a 2.1 or 2.0 PCM signal.
When to use PCM
For 5.1 audio, use PCM sound only if you
Output audio directly from each source device and to the receiver.
Output this audio via HDMI, and not optical.
