How are the devices connected to the TV? HDMI, I'm guessing, if you're able to output the sound via optical?
If they are HDMI, you might try connecting them through the receiver to the TV to see if it solves the problem. The issue might be with your TV's sound processing, not the receiver. Connecting them the other way would reveal if that were the case.
Also, do you mean that the front display on the receiver blinks on and off?