Yah not sure what I was thinking, I totally screwed the pooch on my explanation. I guess that is what I get for working 24 hours and drinking a couple beers after getting home.
Ok you still want LPCM set in the PS4. LPCM is kind of like a .wav file, the highest uncompressed signal of the audio track, while bitstream is like a .zip file. All movies and games have the full uncompressed audio signal they can pull from which is what is sent by LPCM. Most receivers can recognize it, but to do so you need to set the audio mode to Multi channel. Generally the remotes for the receivers or pre amps have buttons labeled movies, music, game. Just cycle through those options until multi channel comes up, and you want to use that for everything.
Downsides are you only get what was recorded. So if you have a 7.1 system and the movie or game was mastered in 5.1 you only get 5.1. The other downside is you dont get the fancy Dobly/DTS decoding light to pop up on the receiver. Other than that LPCM is superior.
You can test it out if you like, fire up a game with a lot of ambient cues with bitstream set, then try it with LPCM. I am quite sure you will hear the difference.
Thanks for pointing out my mistake.