I wanted a similar configuration, with even more decoding/encoding. What I wanted is to be able to hook up headphones to my receiver and decode the optical 5.1 output to headphone with HRTF (head-related transfer function) such as Dolby Headphone.
I have this working! And I am doing it on a Compaq M300 500MHz Pentium III laptop with 128MB RAM that I literally rescued from a dumpster (running XP Pro).
First of all, I want to straighten out a mis-conception shown in this thread. The SPDIF audio will always appear as just 2 16-bit PCM channels. Dolby Digital and DTS are encoded as compressed data within these two channels. A more detailed explanation can be found on the AC3Filter site, but just know that your SPDIF input *should* be 2 channels.
The interface I used is based on the C-Media CM6206 IC. It is a Sabrent 8-Channel 3D USB 2.0 External 7.1 Surround Sound Box USB-SND8. It has optical SPDIF input and output and I purchased it for $24.99 delivered.
I connect the optical output of my receiver to the optical SPDIF input of the Sabrent.
Using Graph Edit, I connected the Sabrent's WDM Streaming Capture Device to AC3Filter version 1.51a. Set the output format of AC3Filter to "3/2+SW 5.1 Channel". Then connected AC3Filter to the SRS Audio Sandbox!
That's it. The SRS Audio Sandbox renders the sound and your output options are whatever you would like. I use the Headphone 360, and it is fantastic.
Now, the only down-side is that the C-Media chip supports SMCS on SPDIF. My Dish Network receiver decodes fine. But I found that when I play a purchased DVD in my Toshiba D-RW2, it apparently sets SMCS enable and I get exactly NOTHING on SPDIF through the CM6206. A rip/copy of the DVD on recordable media works fine. Talk about digital rights management getting in the way of legitimate uses! I need to make a copy of my originals!
Hope this helps others to get this working!