The HDMI on the Sony HDX266 is an output for the built-in DVD player, not an input. That unit has no video inputs at all. The HDMI output almost certainly does not support ARC.
First, try connecting a device with RCA stereo outputs such as a disc player or a set top box to the receiver to see whether you get decent loudness that way.
Next, as Possumgirl asked, what source are you feeding from the TV? If it is something like a cable or satellite set top box, you can probably use the device's stereo output instead the TV's digital output.
Finally, if the TV has a headphone jack, give that a try instead of the optical-digital converter. You can get a cable that has a headphone connector on one end and stereo RCAs on the other. Or, the Sony unit has a minijack input on the front, according to the manual.