This isn't a common question at all. The common questions deal with sending data over S/PDIF to an external receiver, not receiving data over S/PDIF on the PC.
I'm assuming that you're using a Realtek sound codec (most common for onboard sound) and not a Creative Labs sound codec (most common for discrete cards, but increasingly found onboard).
As far as I know the Realtek codecs do not support onboard decoding of inbound AC3 streams to inbound LPCM streams (as you've pointed out). Unfortunately they also do not appear to support passing the inbound AC3 bitstream to a software decoder either. I know that some Realtek codecs can recognize that it's receiving an AC3 bitstream (probably required to implement the S/PDIF specification, this does not imply that a hardware encoder or decoder is present), it just won't do anything with it.
To my knowledge, this is an artificial limitation imposed for licensing reasons. AC3 licensing can get pricey and there was a big kerfuffle a few years ago between Creative Labs and the licencing groups which resulted in Creative Labs hardware being artificially limited by drivers.