Thanks for confirming the same issue is present on the Denons as well. I raised the issue over in the AVS owners thread and was met with some heavy skepticism...
That Roon Headroom Adjustment setting looks useful, but I'm guessing this is the same thing as permanently lowering the volume level digitally. Yes you would lose a little resolution from the digital file, but this is necessary to avoid the clipping issues when crossovers are applied. I do think that manufacturers should be automatically applying this small decrease in level when before crossover filters are applied to avoid the end user running into issues with hot-mastered tracks. There seems to be an omission of this step when handling stereo PCM as opposed to multichannel PCM, as playing the same track through a 7.1 output doesn't result in distortion.
I believe
@markus has a beta DSP firmware from NAD that fixes the distortion issue on the T758, so they obviously know how to fix it. No idea what is taking them so long to release the firmware publicly, as it's been months and months since it was first brought to their attention when they promised a fix was in the works.
If it was only the Rhye track that produced audible issues, I wouldn't be so worried. However I first noticed distortion when listening to James Blake - Limit to Your Love, which isn't exactly a badly mastered track. The issue manifested as a subtle "pop" sound on one of the piano chords in the intro, which I could reliably A/B test by switching back and forth between applying the crossovers.
I'm beginning to lose patience with NAD. The distortion issue is the main problem as it prevents me from streaming directly to the T778 as I'd like to. Instead, the only way to get around the distortion problem is to use a PC via HDMI for music streaming, with the PC set to 7.1 output. The internal BluOS streaming of the T778 always outputs 2.0 PCM which means there's no way around the distortion, other than choosing to run speakers full-range or by using something like Roon with the Headroom Adjustment feature.
Other than that, there are a myriad of other issues with performance or reliability which NAD haven't addressed. I'm happy to post a little summary of my experience with the T778 after a few months of ownership if anybody is interested.
The depressing thing is, I don't see a reasonable alternative at the moment. I have tried an Arcam AVR550, Denon X3600, and the T778, and they all have the same distortion issue. The Denon was an attempt to get something with reasonable audio performance, but I found Audyssey woefully inadequate compared to Dirac on the NAD. At the end of the day, Dirac is likely to make a far bigger impact than any of the sub-par measurements do.
I don't think that a receiver that simply functions properly is too much to ask for, especially at £2500. Very appreciative of both Amir's work and to this community for pushing manufacturers to strive for better and stop misleading customers.