I have my PS3 connected to my computer via the optical output. The PS3 sound settings are linear PCM and I checked all the boxes in the optical output screen to enable various audio output formats (Dolby Digital 5.1, DTS, etc.). Now when I am in the initial PS3 screen showing all the games on my hard drive, there is sound. However, when I actually play the games there would be no sound. Things get weirder when I play DVD. There is no sound when I play at normal speed but there would be sound when I play at 1.5 x speed. Any idea??

I'd only enable the ones you're sure you're going to use and that your system supports. If you chose to enable them all, one setting might take priority over another and function improperly. Does it not auto detect the settings properly?

Following your suggestion, I only enabled Dolby 5.1.  Still no in-game sound though.  I know there is optical sound signal to the computer because I can hear the clicking sounds at the initial XMB screen when I changed the menu.

I'm having the exact same problem. I get audio at normal speed if I use the HDMI throught the tv speakers. How about you? I'm ready to bring it back to Best Buy.

Same here.  Sound through HDMI but not optical.  Problem is my TV has only two channel sound.  I wanted 5.1 so I connected the PS3 to the computer via optical.  Not sure how to correct this!

Not sure you can correct this. If it's not some option that needs to be selected or decelected by the user, it's probably going to have to be fixed by a professional.  
The fact it works at 1.5 speed and in the menu tells me the problem is with the PS3. The fact that it works with HDMI at normal speed tells me it's reading the disk ok, so somewhere between the disk and optical out there is a problem. I just don't know if it's software or hardware.

Ok, during a last ditch effort to try and fix the problem before I returned the PS3 I found the solution (At least for me). I'm not sure what audio card you are using but I'm using a Creative Sound Blaster X-Fi "Fatal1ty". Using the Creative console in "entertainment mode" I found the "Digital I/0" options. Be sure the SPDIF input settings are set to "Dolby Digital/DTS SPDIF-In Decode". Mine was set on default before I changed it. Now it is working just fine. I'm not sure how it got changed, I don't believe I changed it. Hope this works for you.
 
I think the signal in the PS3 menu and at 1.5 speed is not surround and therefor we can hear it. When it switched to a surround signal the setting on the audio card wouldn't decode the signal. Again, I hope this works for you. Let me know how it turns out.