Ok, i got a ps3, 32" olevia and onkyo 705. When watching spiderman 3 or playing games through the optic (whether set to bitstream or lpcm) it sounds better and louder than when I use an hdmi (again whether set to bitstream or lpcm). What am I doing wrong

Maybe nothing. Louder is viewed by most people as better. Are you doing the analog conversion in the same unit in both cases?

No, i dont even have anything else plugged into it besides my ps3. Its just weird cause it sounds cleaner through the optic. I have it set up with hdmi from ps3 to receiver and then to tv. and I can get pcm multichannel light to come on the reciever which i know is the lossless/true hd format. and then i switch to optic and its better?