Seems like it should be possible to output any audio that comes in. Make sure you are not trying to bit stream anything that can;t be output via optical as well (DTS HD MA, Dolby True HD, etc)
If for some reason none of this works you should be able to connect your optical cable directly to the xbox 360 (the connector
I had a Toshiba plasma TV with hdmi in and optical out. I also had an onkyo receiver. I wanted to have my 360 connected with hdmi to the TV and then have the TV output the audio to the receiver but it wont do it. it only outputs audio coming from the tuner. Is this normal for TVs like this, are there any that work the way I want it to. I know I could get a new receiver, but I'm asking about the TV.