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Is there any device that I can connect an HDMI to that will basically extract, or break apart the audio coming from the HDMI where I can output a toslink optical cable with a lower quality than what's coming in the HDMI?


Basically I want to have 7.1c uncompressed HD surround sound audio going through the HDMI into X device where I can then connect an optical cable from that in order for 5.1c compressed audio can be outputted. Is this possible?
 

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Most HDMI sources also have a digital coax output, as well. There are external devices to do this, too. See Zektor and Gefen.
 
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