Isn't PCM uncompressed digital audio?
Yes, that is true. However via optical, you only get two channels (stereo), Dolby Digital or basic DTS (not the newer DTS-MA or DTS-HD). Dish satellite uses DD or 2-channel PCM (no DTS).
There is an optical standard that supports 8 channels of audio at 44.1 or 48 KHz but sadly no consumer audio components support it.
Audio on the satellite is either compressed to Dolby Digital or two channel PCM so you can't do better than that regardless of the path to the A/V receiver. I'd agree that PCM audio should provide the best audio available, all else being equal. But loosing channels (center, surrounds, etc.) is worse than slightly lower quality. In this case, multichannel audio must be DD.
Dish receivers will send 2-channel PCM audio if DD multichannel audio isn't used without changing settings.
With a receiver that decodes PCM I would have thought you would want that? With my pioneer receiver PCM gets decoded and to me has a better sound, better separation and better highs. I agree about using the line out.
"Better" compared to what? Certainly better than analog audio.
HDMI is the best conduit for audio between components that support it. It can support 8 (or more) audio channels at 48, 96 KHz or more, streaming of DD, DTS, DTS-MA and DTS-HD. But if you are limited to optical digital audio, 2-channel PCM is to restrictive. 2-channel analog audio would have the same limitations and would be of lesser quality in most cases.
I'm not sure if the satellite receiver decodes DD to multichannel PCM over HDMI or whether Line/RF and Volume Leveling applies to this path.
Since I've had an A/V receiver with HDMI inputs, I've always let it do the decoding. My Blu-Ray player will decode all formats and send multichannel PCM (up to 7.1 channels) to the receiver. I've played around with decoding in both places and couldn't tell much difference. I prefer to let the A/V receiver do the decode since it's better equipped to handle metadata like "dialnorm" and channel down-mixing.
BTW, there's really no "decoding" of PCM audio -- just converting it to analog.