I'm no audiophile but I'll try to answer as best as I can.
If it's just into his TV I would assume that PCM would be the correct choice and probably even if it was feeding into a receiver first. You'd only set it bitstream AFAIK if you wanted to have your receiver do the decoding but as already mentioned you wouldn't get a TrueHD or DTS-HD bitstream that way from a PS3.
Thanks mate that clears it up for me
