Onboard decoding vs. bit stream
Like we mentioned before, linear PCM is essentially the universal language for your home theater components. That means if you want to listen to, say, a DTS-HD Master Audio soundtrack, it needs to be converted to linear PCM first. This process is usually called decoding, and it's performed either in your Blu-ray player or AV receiver. Let's take a look at the two options.
Blu-ray player with onboard decoding: If your Blu-ray player can decode Dolby TrueHD or DTS-HD Master Audio, it's said to have onboard decoding for that format. That means the player itself converts the soundtrack to linear PCM, which it can then send to a compatible receiver over its HDMI output. Blu-ray players with onboard decoding can also output soundtracks at their full resolution over multichannel analog outputs, if the player has such outputs.
AV receiver with onboard decoding: If your Blu-ray player doesn't have onboard decoding, it may have bit stream output capabilities. What this means is that it can pass, for example, a Dolby TrueHD soundtrack to a compatible receiver without doing any decoding. The receiver is then responsible for decoding it to linear PCM, which means the receiver needs to have onboard decoding.
If you're still confused, check out the
AV receiver portion of the "What Do I Need" section to understand exactly what your home theater needs in order for you to listen to the new high-resolution audio soundtracks.
One last point: contrary to what you might hear elsewhere, there's absolutely no sound-quality difference whether the decoding takes place in the receiver or the Blu-ray player. The common analogy is to "zipping" a file on your computer; it's the exact same file if you unzip it on another computer. The only real difference is that if you use onboard decoding on your Blu-ray player, you won't see the "Dolby TrueHD" or "DTS-HD Master Audio" lights on your receiver. That's because the receiver only knows it's receiving a linear PCM signal; it doesn't know how that linear PCM signal was previously compressed.