Thanks SOO much trifid!!!
Thanks to your above message I just managed to solve this problem that has been annoying me off for WEEKS and driving me crazy from trying a million different set ups with cables everywhere and downloading more codecs, drivers, updates, patches than imaginable
For anyone else out there who is having problems with SPDIF (sony / philips digital interface) connections into an amp heres an explanation (based on my own assumptions) as to what happens;
as trifid said computers cannot encode dolby digital
when you watch a dvd all the computer does is read the sound and chuck it straigt out of the coax or optical port withought understanding what any of it means, ideally this digital sound stream will end up in a reciver or amp which will decode it (this is why dvd's work fine in 5.1)
For games & windows however, all of the sound that is processed cannot be converted into SPDIF stream so you end up losing sub & surround information.
In order to play games in 5.1 you have to use the analoge connections on the back of the pc, and plug em into powered speakers, or into the "Multi-channel In" jacks on the back of your amp. In this case, the computer is telling the amp exactly what sound should be played through each channel. All the amp will do is put a bit of power down the speaker wire and make the speakers play what the computer wants em to play
I hope this helps someone understand how this stuff works and they dont have to go through what I did to get things to work!