My HDMI FAQ may be some help in starting to clear away some of the clouds. Here's the "quick & dirty" summary:

For CD's, DVD's, cable, satellite, and devices like game consoles or media players (Squeezebox, Roku SoundBridge, AppleTV), you can use an HDMI-to-DVI cable and coaxial or optical digital audio cable and have exactly the same thing you would with HDMI v1.x.

There are basically four formats that offer audio which cannot be carried by optical or coaxial digital audio connections: DVD-Audio, SACD, HD-DVD, and Blu-ray. DVD-Audio is very nearly dead at this point (new releases basically ceased close to two years ago). SACD is still around, but it's a niche format that at this point will never see large-scale adoption. HD-DVD and Blu-ray offer a couple of new audio formats that won't go over coaxial or optical natively. In all four cases, you have two practical choices: multichannel analog, or HDMI v1.1+.