Apple TV won't handle surround sound
Apple TV does not offer the sufficient bandwidth to deliver true DVD-like surround sound.
With HDMI and optical digital output, Apple TV should eventually be able to pass DVD-like surround sound just as soon as Apple adds surround-encoded movies and TV shows to its iTunes Store--right?
According to the specs on Apple's Web site, the Apple TV's maximum audio track bandwidth for video files is 160Kbps (that doubles to 320Kbps for audio-only files such as MP3s and AACs). That is far below the 640Kbps and 768Kbps surround Dolby and DTS soundtracks you'll find on any old DVD. And that doesn't even begin to account for the next-gen Dolby Digital Plus and DTS-HD soundtracks available on HD DVD and Blu-ray discs, which start at 3,000Kbps and may eventually go as much as six times higher.
Basically, more bandwidth means there's more space in a file for the actual bits that make up a soundtrack--the more space, the better quality and more channels (six or more surround versus just two for stereo) are available. And because 160Kbps is a pretty tight fit for anything beyond very compressed MP3-like sound, it's a safe bet you won't be seeing surround-encoded files on the Apple Store--and thus the Apple TV--anytime soon. And because this appears to be a hardware limitation, it's probably not something that could be changed with a firmware update.
Yes, you can still connect an A/V receiver or home theater system and get a sorta/kinda surround effect from your Apple TV--just choose the Dolby Digital Pro-Logic II or DTS Neo:6 decoding option that's available on nearly all recent home audio systems. That will deliver a decent faux surround effect from the Apple TV--or any stereo source--but it won't be nearly as rich or detailed as the true multichannel bitstreams found on DVDs or HD discs.
For all the hype about digital delivery replacing optical disc media (DVDs, HD DVDs, Blu-rays), it's worth remembering that even the lowliest DVD holds up to 4.7GB of data. Even with improved compression, you'll need some serious broadband bandwidth to begin to offer a DVD-equivalent video and audio experience (true 480p and true surround sound)--and that's not even high-def. That's why I'm happily sticking with my DVD player and Netflix account for the foreseeable future.