How to get optical out from Gigabyte 2 pin spdifo header

S/PDIF supports stereo, quadraphonic, and compressed audio. Generally, Windows drivers only support stereo output, and "passthrough" for, e.g., AC-3 or DTS audio from a DVD, thus your music will only be in stereo, while "true" multichannel from a DVD should work fine.

Your surround receiver may support handling the "fake surround" as you mentioned, through a process such as Dolby ProLogic, however this will be minimally higher quality than simply using analog stereo.

Buying a sound card should not be necessary, there is no reason for a dedicated sound card to have more "menu options" as it were. Dobly Digital decoding is, if anything, an "extra" feature. Disallowing disabling it would be... Not the most idiotic thing I've seen in the computer industry, but not something I would usually think of being done. If this specific card disallows disabling Dolby Digital decoding, it would be the first I know of.

If you are not hearing any sound, there may be more than one option to enable S/PDIF. I've used odd drivers in the past that had an "S/PDIF and analog" mode that had better success than "S/PDIF only", and vice versa. The audio codec in question, the VIA VT1828S, should be perfectly capable of sending DD or DTS encoded audio, as well as stereo audio out the S/PDIF port, and your drivers should be able to handle this seamlessly. Are you using drivers from the ASUS support site, or plug-and-play? A driver mixup could cause the mislabeling you mentioned, or could cause the codec to function improperly.

If the motherboard has 8-channel output, it's there because it can work that way. Connecting your surround receiver by way of TRS cables is a possible solution, and should serve your purpose, but should also be unnecessary if the optical output can be set up.

All in all, nothing should force you to purchase a sound card. Nothing about a non-integrated sound card should make it any more suitable for basic functionality, and the problem you're experiencing are either software issues, or flaws with this particular chip, not a lack of aboveboard sound card. However, if you do opt for the TRS jack approach, an aboveboard sound card might provide a higher-quality set of DACs, thus giving you better sound quality.

A PSU for your computer must fit your mainboard. According to the documentation on your MB you have to connect this ATX_12V connector. Otherwise the computer will not start.