Digital output (trying to get straight ac3)

Hello everyone. I have a set of Logitech Z680 speakers that are hooked up to my black macbook (intel core duo 2.0ghz, running leopard). Now I used to have them connected to my desktop rig which when I inserted a dvd I was able to get straight AC3 (or dolby digital, whatever you want to call it) to the speakers via optical, I would know this was working properly because "Digital" would display on my speaker's control unit screen. With the black macbook in audio midi setup I cannot for the life of me get it to output on the selected "Digital out" w/ "Encoded Digital Audio" selected. If I select "2ch - 24bit." I can play anything except it of course is matrixed sound (fake).

I have tried off a DVD that is known to work on my PC like this as well as I have encoded that DVD to an .m4v file with handbrake and tried to play that in a number of different ways. No beans.

Any advice?

TIA!

How are the speakers connected? Does the MacBook have an optical audio connector?

Yes the macbook has an optical audio connector and I am using a standard TosLINK optical audio cable.