you can most certainly. I have an old receiver too with DTS and DD only and i just recently bought a blu ray player Sony BD-s550 and the player can decode all the lossless sound internally so all i have to do is use analog cords to my receiver(for the 5.1 sound) and tada, i get hd sound.
Well, yes, you should choose the true HD audio option in preference to, say, 2 channel stereo. With some discs, this is the choice you get. The legacy Dolby or DTS signal is embedded in the true HD signal, so choosing the HD audio will provide the best sound your system is capable of.