I don't have this board, but there may be a setting in the BIOS, as you suspected, to enable audio through SPDIF. Try plugging no other speaker inputs of anykind into the motherboard other than the one you want to run sound from (the SPDIF) and see if that works. Check that BIOS for any additional settings, just in case.
Double checked Bios. nothing there, Pretty sure now it is a Driver issue . Running Windows 7 , a lot of software and hardware is having issues with this Windows.
I wonder if a BIOS update is needed. According to the revision notes, there was a problem with
onboard audio that was fixed that sounds like it could be similar to your problem:
"Fixed issue in ITK with lock/hide state for UQI 6A (Onboard Audio)."
I'm fresh out of ideas otherwise.
Already running most current Bios. Thanks.