Originally Posted by kram1
Anyways I know next to nothing about HTPC but you got me siked up to get this going its got to be really cool to sit back with a wireless keyboard and mouse on giant screen. Just looking for a little wisdom on the best options I have to get this done is all thanks
Ok, first thing you should know is that SPDIF cannot transmit HD quality audio due to bandwidth restrictions. HDMI is absolutely essential to get HD audio. Or a HD sound card with analog outs (there are only two choices though, see below).
SPDIF can only pass-through legacy/DVD quality audio.
SPDIF has another problem; if the audio signal doesn't have a legacy track in the HD signal, it will output only 2-channel PCM audio. This might happen if the software player cannot/will not down-mix the HD signal to DD/DTS.
Audio signals are captured by microphones and digitally sampled & modulated using PCM. All audio signals (CD, DVD & BD) are PCM at their basic level. And PCM is the purest form of audio you can get. The quality of the digital track compared to the analog signal is dependent on the sampling frequency and the number of bits available to carry the information. Obviously, the more you sample and the higher the number bits, the better the signal. The spec is referred to as, Sampling Frequency & Bit Rate.
 CD - Uncompressed, unadulterated signal
 DVD - Compressed and encoded to a spec created by Dolby Labs using lossy codec. Some DVDs have DTS tracks; but one DD track is always present.
 BD - Uncompressed PCM, and/or encoded Dolby or DTS track. This encoding is done using lossless codecs; DTS-HD MA & Dolby TrueHD (these are the most common). There are some BDs out there which have legacy tracks (DVD quality).
SPDIF - DVD quality audio - 5.1/6.1/7.1 Dolby Digital, DTS etc. and 2-Ch PCM
HDMI - 5.1/6.1/7.1 All Dolby/DTS formats incl. HD and 7.1 Ch PCM
For BD playback on PC, you need something called a PAP (Protected Audio Path). If PAP is not present the audio is downgraded by the software player.
There are three ways to get audio from a PC to a receiver;
 Software player completely decodes the encoded audio signal and sends it out over the analog ports, which you can then connect to the Multi-Channel input on a receiver/amp.
 Software player decodes the encoded audio signal to PCM (kinda like unzipping) and sends it over HDMI to your receiver.
 Software player passes the audio signal through without any modification to the receiver.
The problem with this is that there was no device with PAP available during the early years of BD. Hence all software down-sampled the HD quality audio to 48KHz/16Bit. Most HD audio tracks have a 48/16 spec but there are many tracks which are much higher. They can go from 48/24 to 192/24, especially concert discs. Lack of PAP meant the audio signal was degraded, it was still better than legacy tracks but butchered nonetheless.
So depending on personal preferences, options  &  are no good to some people.
Option  of course, is the best choice as the audio signal is sent unmolested out of the PC, it is called Bit-Streaming, the audio track is streamed bit-for-bit as it is, out over the HDMI port.
As of today, there are 4 choices for PAP:
 Asus Xonar HDAV: $150-$250
 Creative Auzentech: $225
 ATI HD 5000 series video cards: $50-$500
 Intel Clarkdale Graphics with Core i3/i5 CPU
Each solution has its own share of bugs & problems, fixes & solutions, and supporters & detractors.
ATI generated a lot of buzz in recent times since they are the cheapest solution.
 comes in three flavors: Std., Slim & Deluxe. Slim is a PCI card with HDMI bitstream out, Std. is PCIE with HDMI out and Deluxe has an additional daughter board with Analog Outs.  comes with Analog Outs as well.  &  are purely Digital Out (HDMI), no Analog Outs at all. So if your equipment doesn't have HDMI inputs and is good enough to not warrant an upgrade, you might want to choose either the HDAV Deluxe or the Auz. Hi-Fi HT.
In addiiton,  &  are tied to proprietary software, TMT and PDVD respectively; while ATI & Intel are supported by all three players (PDVD, TMT, WinDVD). Also, the freeware player MPC-HC (with ffdshow) supports ATI.
$150 can buy the cheapest PAP sound card or get a ATI 5750 (or thereabouts) with great video post-processing capabilities.
If a user has an old receiver and/or they aren't setup to fully appreciate HD audio, recommendation would lean towards SPDIF.
However, with your kind of equipment, I would strongly advise you to get a PAP solution to maximize your HD experience.
This info is a rough guide to get you started. You will need to read more about it (here and elsewhere). There are numerous threads regarding HD audio and the above mentioned audio solutions.
You will have to choose what's best for you.