Now my PS3 and Xbox 360 are connected to my Samsung Plasma through both HDMI. Now my Plasma contains Optical out. I was gonna run a SPDIF cable from my Plasma (Optical out) to my Z-5500 (Optical in) for Surround Sound. Is this how I should do it?

Can I get true Dolby Digital / DTS through this setup?

Most TVs downmix what they pass-through to their optical outs to 2-channel. A few don't. If yours is like most, you will not be able to pass DD/DTS 5.1 to your Z-5500 setup.

Ya I think I am just getting 2.1 through 5.1 with dolby

Does the Z-5500 have only one optical in? You would then need an optical switch for true surround sound.

Routing through the TV, while convenient, is very limiting, and there's no real way around it.

Apparently my plasma only contains Dolby Digital out......not DTS....That most likely explains why I only get Dolby Digital on my Z-5500

And it's probably Dolby Digital 2.0 stereo, rather than Dolby Digital 5.1 surround sound you'll find on DVDs. Yes, there are a couple flavors of Dolby Digital.

The reason it doesn't pass DTS is that the optical out on a TV is intended for the TV's tuner to send Dolby Digital 2.0 and (from the HD channels) 5.1 to a surround system. But most TVs limit the 5.1 sound to the tuner and downmix anything else (like your game consoles or DVD players) to stereo PCM. There are a few TVs that pass Dolby Digital 5.1, but not many, and I don't know of any that pass DTS.