yes, you will connect that digital output from the dvd player to the A/V receiver. This is actually the most common type of system setup. I have never seen a dvd player that has all the audio jacks to connect the speakers for a 5.1 system directly to it, weird.
I have a Sony DVP NS305 DVD player. I am thinking of buying a 5.1 surround sound system for my Dvd player but I don't know much about surround. I have seen DVd players with all the five connectors for the surround speakers and the sub woofer and all, but my DVD player just has one extra port called the "Digital Out - PCM/DTS/Dolby Digital/Mpeg.........Coaxial" I just wanted to know that if i buy a surround sound system with the five speakers and subwoofer and an A/V reciever, will I be able to connect my DVD player to the system through this single Digital out port. Thanks.