In short, your opinion is fair, but your description may errantely misguide some folks. So I’m just offering an opposing opinion. ;)
When WDTV Live Hub is set to STEREO (Connected via HDMI) its Optical Port will not Pass
the DTS or DD stream to your AVR. I was told this is a limitation of the device and not a bug or a missing feature.
That is true. If you set it to STEREO it’s going to send STEREO streams to all devices, whether it’s HDMI, Analog, or Optical … and it will send to all three simultaneously.
You cannot Pass Optical DTS/DD when your WDTV is connected Directly to the TV with HDMI.
This is not true, at least the way you’ve stated it. You can certainly pass DTS and DD to your AVR via OPTICAL if you set the audio mode to “Digital Passthrough via optical”
So I’m guessing what you are intending to say is that you cannot simultaneously send Digital Surround through Optical while simultaneously sending 2-Channel Stereo through HDMI.
That is, indeed, correct, though your premise implies a much more serious issue.
Though, I also question the assumption that this “is a setup most people will opt for…”
If one has an AVR, I don’t understand why one wouldn’t use the AVR for everything. It’s much simpler (IMHO) to use it for everything than it is to use it selectively…
Heck, on both of my systems, I have the TV speakers turned entirely off. If it weren’t for FCC certification requirements in the US (and the equivalent in most countries) TV makers possibly wouldn’t even put speakers and the associated decoders and amplifiers in the large screen sets anymore, because a good chunk of people are using outboard audio processing anyway.
Last time I checked, even the $3000+ TVs had terrible sound quality anyway because of the microscopic speakers they have to use to keep the already slender profile of the sets minimal… 
Not Everyone wants to have their AVR on blasting MultiChannel audio
when its just a TV show that is encoded in Stereo.
It won’t. If the TV show is encoded in Stereo, your AVR would be outputting Stereo, not blasting anything. ;)
