[popcornmix]

First, why does passthrough not send the full lossless audio out? Why use the Pi to do the decoding?

8 channel HD audio requires 8 channels @ 192kHz (even for 48kHz audio). That is more than the Pi was designed for.
We can however decode the HD audio to 8 channel PCM and output that at 48kHz (as almost all Blu-Ray content is 48kHz).

Second, how is this little cheap device capable of properly playing back MVC 3D MKV when a far more powerful (and expensive) HTPC cannot? That doesn't make any sense to my brain!

The Pi has MVC capable hardware, and deborah_c and myself have been working hard to support it with kodi.
Some other platforms could support MVC in theory but need someone to do the work.