Getting bitstreaming of HD AUdio working with standalone mkvs in SageTV v7 has been spotty at best. The internal mkv splitter that SageTV 7 now uses does not support properly (does not work with TrueHD and DTSMA is a mess). You can replace the internal splitter with Haali but that introduces other issues. TrueHD bitstreams fine but there appears to be a bug with Haali where DTSMA mkvs created with MakeMKV play fine with Haali but DTSMA mkvs created with mkvmerge or other stutter like crazy with Haali. I have submitted a bug to SageTV regarding the internal splitter issues.
Right now I find the most reliable way to bitstream from standalone mkv/m2(ts) is to use MPC HC launching from your favorite front end. I have been testing the XBMC DSPlayer build as well and bitstreaming works fine.
Your source for everything home theater & HTPC related
...but I'm also sufficiently happy with the audio quality from 640K DD
I can't speak to bitstreaming HD audio from mkv's as I've never had any experience with it. I have gone two separate routes for bitstreaming HD audio from my HTPC via HDMI to my Onkyo Pro preamp/processor. I picked up an Asus HDAV 1.3 sound card as soon as it became available. It worked great but I recently ran into some hardware issues with my HTPC and I'm not sure if the HDAV was involved without running additional tests.
I recently upgraded from XP Pro to Win 7 Pro with Media Center in order to accommodate the pending release of the Ceton CableCard tuners. I needed to free up a PCI-E slot for the Ceton card so I swapped out my existing graphics card and the HDAV for an ATi 5670 card. The transition was simple and painless. I also upgraded to PowerDVD 10, which fits seamlessly into MC. Since I rip all of my Blu-Rays to iso's I installed the auto mount app by Mikinhosoft. I'm able to select an iso from the movie library, have it mount the image, and start playing in PowerDVD while using the Media Center UI. I can select the audio option to bitstream the HD audio during playback and it works beautifully.