Yeah, OK, so I really could have been a lot clearer about this.  Let’s try this 
again. :)

Basically there are really two ways to do surround-sound: hardware-decoded and 
software-decoded.

In the former, much more common and simpler case, you just get your media 
application, like iTunes or DVD player, to send AC3/DTS over the SPDIF, and the 
rest is down to your decoder.  From a historic perspective, this is not so 
different from the days of analog Dolby ProLogic, which used phase-shifting to 
encode surround tracks over a stereo line; the hack works because the 
natively-stereo SPDIF interface can be fed, and then recognise, a digital 
AC3/DTS stream.  This method is used by your Apple TV, and yes, iTunes movies 
do indeed include an AC3 track for this purpose.  DTS uses a similar (slightly 
less compressed, but still ultimately lossy) approach.  The SPDIF is usable, 
otherwise, for lossless stereo output.  Both encoded and unencoded data cannot 
be sent over the SPDIF simultaneously, of course.

In the latter, your Mac does all the decoding.  The audio device is merely 5.1 
(or whatever) output, each channel separately addressable.  iTunes and DVD 
Player will not use software decoding for AC3 5.1 (but DVD Player will downmix 
as necessary to stereo).  Other formats take up the slack, like WAV or AAC, but 
you need alternative software, like VLC, if you are to get software-decoding of 
AC3 without the pass-through.  Naturally, using this method gives you the most 
choice (unless DRM gets involved), but is also the hardest to get right and the 
least convenient if you are intending on walking the golden path set by most 
studio-endorsed software and hardware combinations.  In an ideal world there’d 
be a way to perform on-the-fly encoding of non-dolby-digital data to an audio 
receiver over the one port, but it doesn’t work like that.  And there’s no 
software to allow your computer to receive digital data for decoding to an 
analog audio output device, probably because it’d violate some licensing 
agreement or other, but there are decoder devices out there that you know where 
you can get them from that’ll take up the slack here.

Now, I hope I have explained things adequately. :)

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