Soundcard question: mixing PC game sound with TOSlink input

I don't have a home theater PC, exactly. What I have is a computer in my office with a Turtle Beach Santa Cruz sound card hooked up to an old Pioneer stereo receiver. And I have a small TV on my desk, hooked up via HDMI to a cable DVR (and doubling as a second monitor).

My primary uses of this setup are to listen to MP3s and play PC games -- often at the same time -- and to watch TV from the DVR. Sometimes I play a game and watch TV at the same time; the cable box is hooked up to the line in on the Santa Cruz, so both sounds go through the receiver to the same speakers.

Now I have to replace the failing old receiver -- I've been looking at the Denon AVR-1612. The Santa Cruz is also going to become useless when I upgrade to Win 7 64-bit, since there's no driver support. I don't want to use the analog outputs from my motherboard's onboard sound (Realtek 888) because music doesn't sound good that way. No problem, I thought -- I can use optical from the DVR to the motherboard, and optical back to the receiver. Then it will all be like it is now, only digital, and if I upgrade the speakers later it can even be 5.1.

After more research, I realize this won't work, because the mobo won't be able to mix the TOSlink input with the game sound and put it all out through the TOSlink output. It seemed like there might even be problems with mixing game and MP3 sound to a TOSlink output, which is *really* a deal-breaker, though I didn't understand what the issue was there. And I'll definitely only get stereo from the game because the motherboard doesn't have DD Live or DTS Connect.

So if I go ahead and buy a sound card to fix this problem, what should I get? Can the Creative X-Fi Titanium mix inputs the way I'm looking for? Is there a cheaper option that can do what I want -- considering that I want to avoid ever using the card's DAC, so I don't care if it's any good -- or a similar one with fewer driver hassles than a Creative card?

Thanks for your reply. It's a Gigabyte GA-770T-USB3 with a Phenom II x4 945 3.0Ghz, 4GB of RAM, and a Sapphire Radeon 4850. The 4850 does have an HDMI port, and apparently can do HDMI audio, though the HDMI doesn't currently appear as an output option in my audio control panel.

Even if I had to upgrade my video card to make it work, I'd rather spend money on that than a sound card. Will it work for my situation, though? I'd be wanting to listen to audio from the computer while watching video from the cable box, and based on the thread you mentioned, it looks like the xx12s can't mix-and-match HDMI sources like that.

If I'm not playing Blu-Rays on my PC -- which I won't be at least in the short term -- would upgrading to a card with bitstreaming still do anything for me?

Yes, that's the idea.

That sounds like it would work, but I was hoping to get away with just the one set of speakers for both space and cost reasons.

Maybe I'm overthinking this and should just get a pair of small computer speakers to use for game sound while I'm watching TV. I guess what I really care about in that situation is just being able to hear that I'm being ambushed.