Thanks for all the replies. Greatly appreciated!
Here's the deal...just like bills8321 said, you connect the chat cable through the dedicated headset adapter that you must purchase separately (an extra $25 expense for headphones like the A50's).
The issue specific to the A50's that I am encountering is that the wired chat connection makes the headsets act just like you were connecting them, hard-wired, to a PC, phone, tablet, etc.
The optical out from the X1 to the Astro mix-amp direct to the headphones via RF is overridden. Both sound and chat are forced through the controller, just like the new dedicated X1 branded headsets. That's where the overall quality, interference and drop-outs are introduced. I thought I could isolate chat to the chat adaptor.
It makes sense that this is happening because the X1 controller and chat adapter is acting like a stand-alone device to the A50's.
JSY, I have updated my X1 controllers, the Astro mix Amp (v.4143) & Astro headphones (v. 4142) accordingly. No luck but agree that it should work exactly like you described. The wire to the controller should only be used for chat.
I don't see any way around this as of yet but still experimenting.