Crackling and distorted sound problem

Recently realized that my sound card does not support sound through HDMI cable. I connected a S/PDIF cable to the output port on the PC and the other end to RCA inputs to HDTV. I have an HDMI to PC and other end to the HDTV. I have no issues with picture quality. The sound on the other hand is poor. (distorted) I am not looking for HD sound just something that can be listened too. The specs and tech support say this will work. I will get sound through ether the amp or the TV speakers. Not sure what I am missing or what to do to correct this issue. Am I missing drivers? Is this card defective? Unfortunately tech support is no support when dealing with Gateway. Contacted NVIDIA and they reverted me back to gateway. They will not support products that are for OEM at least this is my understanding. Is there something I can do to correct this problem? Now I am also getting crackling sound just hearing music through the Bose system connected to the PC. I can really use some input.
Thanks.

My specs are:
OS Name Microsoft® Windows Vista™ Home Premium
System Manufacturer Gateway
System Model LX6810-01
System Type x64-based PC
Processor Intel(R) Core(TM)2 Quad CPU Q8200 @ 2.33GHz, 2336 MHz, 4 Core(s), 4 Logical
Installed Physical Memory (RAM) 8.00 GB
Total Physical Memory 4.00 GB
Available Physical Memory 5.73 GB
Total Virtual Memory 16.0 GB
Available Virtual Memory 13.7 GB
Graphic card NVIDIA geforce Gt 120

Are you using an add on sound card or are you relying in integrated audio ?

The sustem reports (Internal High Definition Audio Bus) This would be what I am currently using.

Hello everyone,
Thanks for your knowledge. I checked the drivers, and previously reinstalled them. They show compatibility. I reset the Khz range to match. I left it at Dolby live at 48000 hz. The sound is working 100% better. There is still some didtorstion when play cd's through the speakers. But the sound is audible and I was able know to get sound through my HDTV speakers using an SPDIF to RCA connections. It is working. It could sound better but for know it is acceptable.
Are there any suggestions to eliminate that distortion? I have already invested in some high quality cables.

Thanks