[noggin]

It is true that with a prefect color neutral grayscale, letting madVR render to 16-235 means that madVR doesn't have to dither. However, even black & white movies are usually not 100% color neutral. They often have a slight color tint. And as soon as chroma is anything but exactly color neutral, madVR instantly has to dither. Which is the case for 99.99% of all movies out there. And once madVR dithers, it shouldn't matter too much whether you configure madVR to output PC or TV levels.

Yeah, sure, in theory having madVR output 16-235 should be slightly better. But in real life I don't think there's much of a difference between 16-235 and 0-255 output. Of course 16-235 allows the preservation of BTB/WTW, which might be a plus because some displays might be calibrated to show a tiny tiny bit of BTB/WTW or something.

There are valid reasons to preserve BTB and WTW content even if your display doesn't show detail at those levels (it shouldn't display BTB - if it does your black level is set-up, though WTW is a slightly different matter) This is because BTB and WTW are there to preserve over/undershoots on transients. If you clip transients (which happens if you clip BTB and WTW and have >235 or <16 transients) you can introduce ringing, particularly if you then resample or similarly process the source image.

Not always an issue if you are connected directly to a pixel matched TV. But it can be an issue if are in a more complicated set-up than that.