Exactly, more quality system you get, more things sound like s*hite
No, you are just able to tell the difference between low quality or low bitrate sound and higher quality sound sources. On a crappy system, everything sounds like crap.
I use Large Theater in the daytime or when I won't disturb anyone and really want to crank it up.
For night driving or when not in mood for full volume I use Small Theater.
When using ''Large Theater'' setting, I set the Menu music and sounds to 120, and race sounds to 50. I don't use race BGM.
Using a Yamaha RX-V661 7.1-Channel receiver hooked up via HDMI to the PS3, then to a 52'' Aquos. I sit about 6 feet away from the TV in a sim rig w/G25.
edit.. for anyone who cares, maybe one person? (some specs)
-90.0 Watt - 8.0 Ohm - 20 - 20000 Hz - THD 0.06 % - 2.0 channel(s) (Front)
-90.0 Watt - 8.0 Ohm - 20 - 20000 Hz - THD 0.06 % - 1.0 channel(s) (Center)
-90.0 Watt - 8.0 Ohm - 20 - 20000 Hz - THD 0.06 % - 2.0 channel(s) (Surround)
-90.0 Watt - 8.0 Ohm - 20 - 20000 Hz - THD 0.06 % - 2.0 channel(s) (Surround back)
---Audio D/A Converter 24bit/192kHz
---Output Power / Total 630.0 Watt
----Weight25.6 lbs
Using some surprisingly good sounding Onkyo speakers, although they are the weakest link. I can dial them in nicely with YPAO, which uses a microphone to equalize each speaker independently according to it's location in the room and it's characteristics. YPAO makes a huge difference actually. 10'' subwoofer crossed at 60Hz. My front left, right, and center speakers are medium sized and have no problem with 80Hz and lower.
GT5 sounds great most of the time, but there are times when I can hear some 'digitized' sounds that GT5 spits out that are not pretty. It's kind of like a tone that repeats itself several times a second when certain sounds mix together.. Like engine sounds and wind noise combined with three other cars and some tire squeel. It's like the PS3's sound processor can't handle it and just does the best it can, and the sound gets digitized and muddled at the same time. When an engine is droning around an oval it's most notable. It's subtle though, and doesn't happen all the time. I think the last update helped that problem quite a bit too.
Large Theater setting is definitely made for a system with a subwoofer. I never read anything that said otherwise. It sounded like someone said ''Large Theater'' was made for a sound system without a subwoofer in a post earlier, but that makes no sense at all.