Surround effect is there alright in all channels when I set the AVR to 5.1/Cinema-DSP and it shows on the screen also. Since my TV does not have ARC, I have connected HD STB to TV through HDMI and AVR through C-axial. I'll check with STB---AVR---TV through HDMI also.
Try not applying any DSP at all. Try source direct. Also, there should be a display setting where you could check the source signal type. That should display DD. But as i said earlier, i doubt in coaxial u will get DD displayed. Surely go ahead and try the STB->AVR->TV HDMI way once just to check the genuineness of DD signal.