You basically have a choice between digital and analog. Some argue that analog is better then digital or vice-versa, but that's referring to separate surround sound channel analog. In analog, each cable is worth one channel, so to get a 7.1 sound you will need 8 analog cables. The analog cables look like those red and white cables. There's no difference between colors, it's just to help match left to left and right to right sound.
You most likely don't have 7.1 analog inputs, but only 2 inputs. That's because PLIIX stands for Dolby Pro Logic II, which transmits specially coded surround sound through two analog outputs, but is decoded in the audio receiver to separate it into 8 channels. Neo is a similar technology, however this is an algorithm and is not as good as true separate channels. You can't compress something to be exactly the same as the source.
If your DirecTV is hooked up via a TOSlink (Optical) or Coaxial Digital, then I recommend you using Dolby D Ex because it is the digitally transmitted into separate channels. However, if you're using two analog cables, then PLIIX Movie is your next best option.
For your 360, just use PLIIX Movie when playing movies and PLIIX when playing games. It's worth switching since the receiver will set different equalizers on games. There will be higher bass for movies for explosions and a higher treble for glass shatters. Also, priority will go to your center speaker for dialogue in a movie.
Again, you can just test it out yourself. Some games and movies are encoded very well for PLIIX, but I find that Dolby Digital is the best case in most scenarios. Hope this helps!
A quick article if you want to read more.
http://www.crutchfield.com/S-64iNJ4w..._surround.html