I also have the same problem, though I'm using the Audiophile 2496 rather than the DiO. WinDVD 2.8 gives me perfect DD and DTS, but PowerDVD 2.55 doesn't gimme ANYTHING at all from my S/PDIF. The ATI DVD player is even worse, not even recognizing that I even have a soundcard.
I've tried every trick I could find, but perhaps you should try them, you might be luckier than me:
Update to Win2K SP2
Use DVDGenie to enable S/PDIF output on each player
Unregister WinDVD filters with DVDGenie before starting PowerDVD
Use PowerDVD 2.55 instead of 3.0(3.0 is known not to work, while 2.55 is rumoured to work, but not for me)
Windows 2000 has a problem with passing through the digital signal from the DVD to the sound card. There is a entry in the microsoft knownledge database about it. You have to have fixpack 2 installed as it contains a fix which reportedly works for some sound cards.
It works for me any way with winDVD 3.0. I do use a different sound card (Terratec) under windows 2000 so that might help to.
___PowerDVD 3.0.0324 never did have the ability to pass-thru AC-3/DTS via S/PDIF under Windows 2000 SP2 that I remember. I have been using XP for quite some time now but I believe you would have to upgrade to 0905 before you achieve AC-3 pass-thru with the M-Audio cards under Windows 2000. Under XP Home and Pro, the 0905 and XP 4.0 work as expected. You can find a link to the 0905 upgrade with a little searching right here in our very own forums.
So I take it that you recommend XP over W2K as a HTPC platform? I'm getting close to abandoning my effort as well with W2K. I continue to have grief with the W2K and the Radeon VE as well as my SB-Live card 1st generation not being able to pass DD and DTS. All this is working fine with W98SE, same hardware. All the hoops I'm having to jump through is reminding me of the days I was running OS/2 and trying to get drivers and Windows apps running. I eventially got tired of fighting the fight.
I don't know how you guys get PowerDVD to work, but I've done close to everything, if not everything, to get it to work, but still no cheese...oh well, at least WinDVD 2.8 works, and I do only need 1 player anyway.
___I do recommend XP over Windows 2000 for a number of multimedia related reasons but I also recommend Millennium over either Windows 2000/XP for two reasons. HW acceleration is available under 9x/Millennium with the TheaterTekâ€™s current decoder (not absolutely necessary but for the absolutely best display, you will want this capability) and there is no down sample of 24/96 audio when using the M-Audio or any other 2496 cards under Millennium as there is under Windows 2000/XP. I perfectly understand the long term stability of 2000/XP as I use them almost exclusively but for DVD playback, I boot back into Windows Millennium with a PCI based Radeon using the TheaterTek player.
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