Your AVR probably doesn’t
Your AVR probably doesn’t process the LPCM (7.1 audio input) when it is received and instead, directly outputs to each speaker with amplification. This means it is relying on the source device (your laptop in this case) to perform the processing.
By outputting only stereo, the AVR is able to process the audio. In this case, you are using ProLogic processing to produce audio for all of your speakers.
When you used the USB sound device, it also was doing some sort of processing and apparently creating a Dolby Digital mix for your AVR. This is inherently at a disadvantage compared to sending the original decoded stereo audio to the AVR for processing because the USB device is processing the audio and re-compressing it into the DD output. The additional compression cycle is always going to damage the audio in some way. It is possible it may not be noticeable and/or the processing in the USB device is superior to the AVR. It probably is not the case though.