First of all, applause for X-Fi. It is very nice (Borat Voice).
However, the caveat. I cannot hear my XBOX 360 when I change the Audio options to Dolby Digital 5.1 surround. I have the XBOX plugged into my Sound card via Toslink Digital Optical cable.
I had done some research online about needing to enable the decoder in the Creative Audio Control Panel, but I have no "Decoder" Tab. Also, there is a tab called SPDIF I/O when I select it, SPDIF input settings are grayed out and in the box is default (pre-selected).
I have emailed Creative for support, however they have not responded to me and it has been over a week (their damned website says a 24 hr wait should be expected and last time I checked 7 days is just a TAD OVER 24 HOURS!!!!!!!) geez.
Anyway, Please if anyone has a fix for this please let me know ASAP. It would be most appreciated, and I will give you candy....
I know this is an older post, but I'll reply anyway (maybe someone finds this answer useful):
First, I think you should check the audio panel in windows (you didn't mention what version you are using).
I'm using windows 7 32bit, and there you can set the volume of the digital channel - make sure it's not set to mute (or 0). Also have a look at it while sound is coming out from the xbox to see if the volume meter is active.
Also, if possible, try to test another cable, or use this cable to test on another reciever or audio device to make sure the problems are not from this cable.
One last (and important!) thing:
I checked on creative's website - you can find there new updated (3/2010) for windows 7 which should help your problem, supposing they are driver problems since creative claims the card can encode dolby DTS surround.
If you are using older versions of windows, especially windows XP, and you don't really mind upgrading to windows 7, then it might solve your problem because those updates were released for it.