optical out, coaxial in?

I have been searching all day to figure this out. I normal don't worry about sound as much as video and as a poor college student I put money into a nice panel instead of sound. My dad just gave me his 5.1 HTiB that he is replacing and I need to figure out the best way to hook it up.

It is a Sony AVS k800p 5.1. My TV is a Panasonic st30.

The TV only has digital optical audio out.
The receiver only has coaxial in (red, white).
My Blu-Ray player is a PS3 with HDMI and digital optical audio out.

I was reading that component connections only sends stereo and not true 5.1 so I was thinking this sound system can only use Prologic 2 since is only has the red and white input. Then I started reading that there is something called digital coaxial that DOES support true 5.1. I looked up the system and it is DD, DTS, Prologic 2 equipped making me think it is digital coaxial and not normal RCA inputs on the receiver.

My questions,

1. How can I tell the difference between normal coaxial and digital coaxial that can carry true 5.1?
2. If I use a digital audio converter will I get true 5.1?
3. What is the best way to hook this system up?

I was thinking about going from the ps3 with a digital optical wire to a digital audio converter to the coaxial in on the receiver. This is the only way I know to connect them.

Any ideas?

Thanks

Why would the HTiB say that it had DD which is true 5.1 if it does not have the inputs to accept a 5.1 signal?

I am guessing that maybe the receiver with built a in DVD can play true 5.1 from a DVD?
Edited by morssolis - 7/1/12 at 9:52pm