A Dolby Pro Logic signal is different than a regular stereo PCM signal because it carries 4 (sorta discrete?) channels. The regular left and right are there of course, plus one center channel and one rear channel. This will look like regular stereo sound to the receiver which is why I was stumped.
Kicking on the Pro Logic support (in the receiver) will let the receiver know to root out these extra two channels and upmix it all to 5.1 as best it can.
Getting there...
On the downmix encoding (or "multiplexing" - taking multiple signals and turning it into fewer signals), the various channel signals are matrix encoded into left and right audio signals. Each of the original signals receives a certain weighting or transform, and the final two signals are output to the receiver, which decodes the audio stream.
On the decode, an appropriate demultiplexer will take the two channel signals and apply a transform matrix i.e. specific multipler and appropriate phase shifting of the sinusoidal waves* them back into the appropriate number of signals according to the specification and send each signal to the appropriate speaker.
It's a handy way to save on transmission bandwidth actually, but that's a different story.
On the decoder side, if the hardware does not support Pro Logic or Pro Logic II decoding, then all you get is the stereo. Applying the Pro Logic I & II decoding schema will net you the multi-channel surround. If you put a non-encoded stereo signal through the Pro Logic I or II decoding at the receiver, then you'll just get a messed up surround sound.
*the phase shifting is an analog form of manipulating the signal, though I believe it's common to have a digital representation through phase-shift keying or something in hardware these days. I don't know exactly.
The difference between "Pro Logic" and "Pro Logic 2" is only how the stream gets handled on the receiver side, the signal is the same in both revisions.
Right, the incoming audio is still made up of Left and Right channels. If it was encoded through PL-I or PL-II, it doesn't affect regular stereo output on the receiver side.
If you set up the receiver to output PL-I or PL-II to the speakers (what you will hear), you are choosing to put the incoming stereo signal through a particular transform matrix that outputs multi-channel surround.
As I mentioned above, you could put a regular stereo signal through either decoders, but the resulting multi-channel surround would not sound "correct". The same goes with putting a PL-I encoded stereo signal through a PL-II decoder or vice versa. There's going to be some funky business there.
Thanks for the help guys