Jake,
Integration of two channel with HT can be problematic. Some of the AKSAphiles have taken this on, and a few have been successful, Fred S. in Texas being one. (You there, Fred?)
The HT bypass is a simple switch which routes all GK1 input direct to the output, without passing through any active circuitry OR the volume control. Really, however, you want a bypass on your AVR; this is not something the GK1 can do. But the significant issue is that the GK1 will only handle two channels, not three or five, so this will limit your GK1 interconnection to two channel only, with the other one or three channels controlled through the AVR. The M and R versions of the GK1 are source selectable to CD, DVD, Aux, Tuner and Phono, with any of these further selectable to HT Bypass, so you can take your pick on which source you use.
Hope this answers the question!
Cheers,
Hugh