Ok...
Have you installed SP2 for Win2k? It is vital that this is done. After you have done this, you need to reinstall the Zoltrix drivers, and probably after that, WinDVD/ATI player/PowerDVD.
I don't know why, but the order seems to be important. After you have got this working the first time with SP2 installed, you can upgrade soundcard drivers without reinstalling WinDVD/ATI player/PowerDVD etc...(Thank God!)
BTW, the only time you may want to use the spdif in on the Zoltrix card is for playing DTS CDs. (note CDs, not DVDs). For this you select loopback mode in the Advanced driver properties.
The reason that this is needed is because DTS CDs are recognised by the software as being CDs, and the stream gets passed through the mixer which garbles the encoding. DVDs bypass the mixer...
Try using the search function on this fourm. There's been a reasonable amount of information posted about the Zoltrix Nightingale Pro 6, which is worth reading.