"do i have to set the dvd to pcm to take full advantage of the multi channel analog out?"

Well, I'm not sure. PCM audio is supported by the DVD standard but rarely used.
PCM is a digital form of an analog signal. Straight PCM uses a high bitrate. So it is usually compressed. If compressed too much it will be lossy for sure. I have no idea what happens to a PCM signal using analog out.
The main reason to use PCM is because your receiver has no decoding capability. And that would be a pretty old receiver as most receivers have some sort of decoding capability. Such as Dolby Digital or DTS. So if your receiver is Pro Logic, then yes use PCM.