Update: After updating to BIOS 0024, I have been able to play BD movies with HD-Audio bitstreams without encountering any HDMI handshaking issues with the caveat that I do not use Hardware Acceleration under the Video options of Arcsoft TotalMedia Theatre 6. I am not sure if we need an updated Intel Graphics/Audio driver to resolve this or further debugging is going to be required by the engineering teams.
On the second issue of video artifacts/corruption/pixelation with 3D Bluray movies, my previous statement still stands that this is only overcome by not using hardware acceleration for the video decoding.