I don't know if the Yamaha RX-V867 is converting to PCM as an intermediate stage or not, but given its position in Yamaha's lineup I would suspect it does.
Part of my rationale for getting a RX-A3000 a few years back was that it could do pure DSD in pure direct mode, and it was the only model in Yamaha's product line that could do that. Given that the 867 is about the same vintage, I'd assume it's not doing pure DSD.
Of course, that's not necessarily a bad thing. Even the A3000 only does pure DSD in Pure Direct mode, which disables bass management and speaker correction and such. I find it's not so much of a problem for listening in stereo and 3.0, but more of a problem for surround listening. And many here have argued reasonably that pure DSD playback isn't particularly important.
Short version: PCM conversion is probably happening, be it in the receiver or the Blu-ray player. If you prefer the sound from the receiver's processing of the signal, then that's awesome, and keep using it :).
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