rklein,
You are setting it up wrong as far as I can tell.
Look at it this way. Set up a 2-channel music system first. So, connect the L&R RCA outputs of the DVD/CD player to the CD/DVD/Aux. input of the pre-amp. using a pair of interconnects. Connect the pre-amp to the amp with a pair of interconnects and connect the main front L&R speakers to the amp with a pair of speaker cables.
OK, now you should have a working 2-channel music system. Just pop in a CD and play. There should be no need to select PCM as the player is smart enough to know it is a CD and the RCAs aren't digital anyway, they send the analog signal to the pre-amp.
Now, once you have a working 2-channel system, it's time to add-on the HT rig.
Connect the digital cable from the DVD player to a digital input on the receiver. Connect a pair of interconnects from the reciever's L&R front pre-outs to the HT bypass INs of the pre-amp. I don't think you mentioned surround/center/sub, but if you use those on your HT setup side, connect those speakers to the appropriate speaker connections of the receiver.
So, for 2-channel CD listening, you simply play a CD in the DVD player, select the appropriate source on your pre-amp and play. There is no need to even turn on the receiver at this time unless you want to listen to the CD via the receivers internal DAC.
For HT listening, select HT bypass on your pre-amp, turn on the receiver, select the appropriate source and play. The speakers connected directly to the receiver will be powered by the receiver, and the speakers connected to the 2-channel amp will be powered by the 2-channel amp. When HT bypass is selected, the volume control (and all other pre-amp functions) of the pre-amp are bypassed and the 2-channel gear (pre-amp and amp) simply work as a power amp as far as the HT rig is concerned.
The only consideration you need to make with this setup is that you will need to properly calibrate the HT speaker setting as the gain will be different for the power amp vs. the internal amp of the receiver.
BTW, this is much more simple than it may appear. Let me know if you need additional information. Iv'e used a similar setup many times and it works just fine!
Enjoy,
TIC