low vs high gain

Keep in mind that using the higher 32 dB gain setting does not increase the power output of your amp. The max is the max no matter which you choose.

As noted in a previous response, the switch is simply there to give you more flexibility in matching to your preamp. I'd recommend turning your preamp volume knob about half way up and then choose the amp gain setting that gets you closest to your desired average listening level. If the 32 dB setting is way loud, use the lower amp gain. That will allow your preamp volume knob to give you the best volume fine-tuning in it's "sweet spot."

My guess is the higher gain setting is primarily for passive preamp situations.

I can think of no technical reason that the gain setting would tie to dynamics as you describe unless you are just horridly mismatched.

When you look at an amp's specs, you'll see a sensitivity value. For example, my amp needs 1.5 volts at the input jack to produce full power output of 150 watts per channel. While my amp is not gain switchable, if it were and I changed it to where 0.75 volts now gave the full 150 watts, I'd still have the same power but I'd be running with the volume knob on my preamp at a much lower setting.

The catch is that increase amp sensitivity is also amplifying the preamp and source background noise as well as the signal. If your higher amp sensitivity setting ended up elevating your noise floor, you could actually end up with less dynamic range as the quiet passages would end up degraded by the poor signal noise ratio.

People also have interesting psychological expectations regarding the position of a volume knob. Some get uncomfortable with the knob in a very high position (say 3 o'clock or higher on a traditional knob) so they acutally back off and end up listening at a slightly lower actual volume. In that case the person ends up inaccurately matching volumes between the two settings and is in reality listening to the high-gain setting at a higher volume. This would give the impression you noted.