I can not be sure but I would guess that the best option for sound quality would be to use the RCA SPDIF digital out from the Squeezebox in to one of the RCA digital inputs on the Denon AV Amp. This will mean that the Denon will do all of the digital conversion and then send that direct to the outputs on the Amp. While it is sometimes said that the on board dac in the squeeze is good my own experience is that it is not the best (given the price this is no great surprise) however the digital out with Flac files is excellent and feed this in to even a half decent Dac (which Denon will be) and you will get the best sound quality. If you then wish to set the output for direct / pure two channel or one of the AV settings such as Dolby II Music etc is entirely up to you. Try and give it a listen whichere you enjoy and prefer then use that.
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