Well damnit! Part 2 just messed up my theory from earlier...
"WHY CAN'T I JUST SEND PCM?
There's a lot more to Dolby audio than just compression! You get the best possible audio quality when the final device in the chain does the audio decoding. Dolby audio bitstreams have metadata parameters that define how surround sound is downmixed to stereo, what type of dynamic range compression should be applied and other useful information. To get the best sound quality out of a television or home theater system, it's best if they receive a Dolby bitstream over HDMI. Additionally, there is NO way of sending Dolby Atmos over PCM over HDMI, so you have to send Dolby Digital Plus or Dolby TrueHD to get the Dolby Atmos experience."
So why the hell is my AVR reporting ATMOS over PCM?