Problem solved. I downgraded my drivers to 12.1 and it fixed it. FYI you can't just install older drivers over newer ATI drivers, the install won't output an errors but it does not install them. You must manually delete the drivers to downgrade. Once I deleted the drivers and got 12.1 on the PC my HDMI audio works as expected. It's a known bug with anything greater than v12.1.
5/5/12 at 5:38pm