I have a Direct TV HR10-250 connected to a 970 via HDMI>DVI #2, Audio is a Optical>optical #1
Surround sound selected is dolby Dig.

The problem I have is while watching tv the sound will change as if its changing surround modes. Other times it starts to change sound but it makes crackling sounds and pops (speakers hate this), When I go to OSD after this problem occurs I notice 2 things. Lower left corner of display says analog, 2nd I no longer have a choice of dolby digital but now its por logic. I select pro logic and wait for the sound to change again, I go back to OSD and Dolby digital is an option but anlalog is still in lower left corner.

Is it a bad optical cable? Is it a problem with sat box? or is it my set up?

Please help,
mike

Check to see if you have "AUTO-POLL" on for that input - and if you do, try turning it off. It could be that the box is dropping the digital audio and the 1070 is reverting to analog to preserve a signal (which would explain both the "ANALOG" on the display and the absence of Dolby Digital as a processing mode).

got it thanks