I have a 5.1 setup in my living room right now where just about every source I have is split into 5.1 including: DVD, radio, tv, cd player, ps2. Because my receiver supprts it, I can take a 5.1 source and downmix it to stereo, or upmix a stereo source to 5.1. I prefer using 5.1 for most things, but for CDs I always use stereo because CDs are engineered to be heard on a "stereo" system.
That said, in a car I would recommend using stereo for the radio and CD player because radio broadcasters use processing to enhance the 2channel audio before it gets to your car (I work in radio). Plus you will get to use your crossovers and subs...etc... I would use 5.1 for DVD playback because that is the way it is intended to be heard. This is only my oppinion though.
For hookups, ideally I would have a HU feed a 5.1 decoder that is capable of passing both 5.1 and stereo signals to the outputs (rca I assume). Then use your HU to select 5.1 or stereo output.
I think that makes sense, let me know if that helps.
~Teenkertoy



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