In at least two scenarios bitstreaming will sound much better than PCM with the same channel count. (terminology: AVR = Audio/Video Receiver)
1) When playing AC3. Kodi implements AC3 Dynamic Range Compression. This is rarely, if ever, enabled by default on AVRs. Kodi has the option to disable it, but it’s well hidden. You must create an advancedsettings.xml file, like so:
<advancedsettings>
<audio>
<!– Whether to use Dynamic Range Compression (DRC) on AC3 streams. 1.0 is “full” compression, as defined by the audio track’s metadata, which is recommended for “basic” sound systems such as the internal speakers on a TV. 0.0 is no compression at all, which is recommended for people with nice multi-speaker sound systems. -1.0 (default) defaults to whatever ffmpeg uses, which is currently the same as 1.0. This has no effect if passthrough is enabled for AC3. –>
<applydrc>0.0</applydrc>
</audio>
</advancedsettings>
See advancedsettings.xml (wiki) for general information about how to use advanced settings.
2) When playing 5.1 audio on a 2-channel system. Kodi’s downmixer discards the LFE channel. AVR downmixers don’t. So PCM output will lack bass compared with bitstreaming.