I prefer optical. It really depends on your Amp/pre-amp. Most Denons have three optical and one coaxial, so if you wanted to go all digital, optical is the better choice with a Denon. Don't know about any others. I can assure you that optical is at least as good as coaxial, if not better. It's a digital transmittion transmitted by light. I'm fortunate to have a Bravo D1, Replay VDP, and Motorola 5100 HD Cable settop box all connected via fiber to the Denon 3803. It's a tremendous sounding setup.
Don't forget, if you connect digitally, be sure to change the digital output from the PCM default to digital. This way your Dolby Digital flags will decode correctly.
the toslink optical audio link is inferior due the interface being a poor design resulting in improper alignment and introduction of copious amounts of jitter, almost by definition. fiber optics are done well on high end equipment because they use interfaces other than toslink and also due to optics used and quality of construction. toslink's poor performance is best discovered with a garden variety music cd. you'll hear the smearing and collapsed soundstage most readily and other artifacts that are sometimes masked by the compression technology and program material of typical in 5.1 soundtracks - wait, do those drums sound like nylon stockings are wrapped around the sticks and do those cymbals sound like they have tin foil on top?!? and would you rather all of sudden read a good book? yuck. the glass toslink cables (rather than cheaper plastic ones) from well known manufacturers fare a bit better but even those great pains can't greatly undo the damage done by the poor interface choice.
coaxial (RCA) digital cable is far and away a better medium especially if the connectors themselves, like the wire, holds to the 75 ohm standard, which is NOT a given. canare connectors for example, are superior. the difference between the outputs should be clearly contrasting even if you bought all your gear from circuit city and see nothing wrong with bose speakers ... most outboard DACs are equipped with coaxial digital out for that reason. next up the line for quality audio digital transmission is BNC, then AES/BU. these you find on higher quality equipment: it's a cost thing certainly, but toslink is everywhere - consumers who watch dvds don't always discriminate (or even want to) in the quest for convenience and affordability. the toslink cable that comes with your player or satellite dish cost less that a buck.
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