The difference between the X-Fi DTS/DDL and HDMI is (If you hook it up to an AV receiver via optical cable/HDMI) that when you turn on the DDL/DTS on your X-Fi, it's always on, whether the content is stereo, mono or muti-channel. If' you are playing stereo content, DDL/DTS in the X-Fi will up-mix the content and create an ambient surround effect that is not present in the original stereo content, and this effect is very different to the sound stage width, depth and imaging you get from a proper stereo set-up. If the content is multi channel, it will play proper multi channel (up to 5.1 via Optical Digital) with a bit of post processing (depending on your choice between DDL or DTS).
This doesn't happen via the HDMI port unless you get software to enhance it (eg :realtec or X-Fi MB software solution). Stereo content will be true to the original stereo content, and if you are playing DTS, DD, DTSMA/HD, etc the HDMI port will pass this signal directly to your receiver to figure out what to do. And depending on your taste, you can either have your receiver in Direct mode to bypass any post processing to enjoy the content as is, or apply EQ settings (In your case Audyssey), surround sound post processing to create the desired effect.
Sound coming from the X-Fi card can be applied with creative's own sound processing (eg: X-Fi Crystaliser : which is like turning on the "Loudness" button in some older Stereo integrated amps + you can apply the EQ and other effects. This is bypassed via HDMI, unless as I mentioned earlier, you have a software solution to work via the HDMI port.
Another important point is, audio resolution. The max audio resolution via the X-Fi's optical port is only 5.1 96KHz/24bit. HDMI will allow true 7.1 192KHz/24Bit. It is very difficult for a person with normal hearing to tell the difference between these two resolutions, unless you have the equipment to deliver/reproduce the extra resolution (receiver, Speakers, cables, etc). If it's just audio quality you are concerned with, best way to compare between the two is to turn off all processing in the X-Fi software and play your favorite content and then compare it to the content played via the HDMI port and decide for yourself what sounds best for you.
But if your requirement goes beyond that (5.1 vs 7.1) then HDMI is your best bet because Optical cable wont carry 7.1. Alternatively, if your receiver has 7.1 RCA inputs, you can use 3.5mm to RCA from the X-Fi Analog outputs to get 7.1 Edited by ScreenX - 10/11/12 at 6:54pm