I used my connect in the exact manner as you describe with zero issues. Yes you can set it to auto in which case, when you turn on your TV, the SONOS will switch the the line-in source. If you start streaming music to it, it will switch to the streaming source until you switch it back manually, or turn off the line in source and turn it back on.

As far as delay, I did not notice any. There is not a setting to adjust it.....there should be in my opinion. You can select whether you want the line in audio compressed or not. I do not know how much a delay will be introduced with the compression turned on, but it may be enough to overcome any possible delay issues.

Hope that helps.