Many many thanks to Peter of Onkyo Phil, who went out of his way to update the firmware of my S3300 system. The switching issue of the AVR has been corrected, I could now switch to PCM or Bitstream or vice versa without any hitch or problems.
Peter even took a few moments to adjust the unit and it sounds way way better now. The after sales service of Onkyo is more than excellent and there is no doubt, I'd be patronizing Onkyo products from here on...
The newer stocks of Sights and Sounds are already equipped with the latest firmware so there shouldnt be any issues with later adopters.