I don’t know exactly what the USB device you have does, but you mentioned that it converted audio to 5.1 (which is consistent with Dolby Digital or DTS and not simply Dolby Surround encoded stereo audio). It very well may be just sending stereo. You’d have to hook it up again and see whether your AVR detects as DD.
The stereo sound coming from Netflix or VUDU is most likely 48kHz. They definitely aren’t sending down 96kHz. You can set the output audio to 96kHz, but that’s just re-sampling the audio which isn’t going to result in any improvement, but it is fine to leave it at that setting.
The reason why it sounds better is that your AVR ProLogic IIx does a better job at creating a more convincing surround sound for you than the USB device.
.
