Originally Posted by KryptoNyte
Probably be easier if you joint point me directly to the specific [stupid] rule that you refer to where audio optical pass-thru violates HDCP.
Devices that are HDCP compliant are not allowed to re-output HDCP content over a non-HDCP digital connection unless they reduce that content to CD quality or less. This is laid out in the HDCP License Agreement
which any device manufacturer that wants to make their device communicate via HDMI must agree to (and pay for). The specific passages you want include 22.214.171.124 and 126.96.36.199:
188.8.131.52: A Presentation Device shall not permit the output of Audiovisual Content to digital outputs, except, if the Presentation Device is also a Repeater, as expressly provided in Section 5.3 of these Compliance Rules. Notwithstanding the foregoing, Presentation Devices may output the audio portions of Decrypted HDCP Content that is Audiovisual Content in ... digital form in either compressed audio format or in Linear PCM format in which the transmitted information is sampled at no more than the equivalent of 48 kHz and no more than 16 bits per channel
184.108.40.206.2(a): Limitation on Sound Quality. Sound quality of Legacy Digital Audio Outputs when playing Linear PCM and Packed PCM streams shall be equivalent to CD-Audio Quality or less.
Again, this is not a technical limitation, this is a legal requirement that Sharp must abide by in order to be in compliance with the HDCP and HDMI licenses.
While you're at it, perhaps some explanation as to why a DTS audio mp4 file on a USB drive plugged into the television has no problem passing the digital bitstream via the optical output.
Because that has nothing to do with HDCP. In this case, your TV is reading an unencrypted file on a USB drive, not receiving HDCP content. So there is neither a technical obstacle nor a legal obstacle for them to implement bitstreaming of this content.