This is a tricky proposition. Since you have HDTV's in both spaces, you are running component/HDMI to both - if you were running composite to the second TV, it would be simple enough to use the zone 2. Doing it in this case would be problematic, however.

I do have a thought, though. Try this on for size: run stereo analog output from the XBox360 and HD cable box to the 990's inputs, then run stereo analog from the 990's Video1 record output to the stereo analog input on your component splitter. Even though the 990 will use the digital input for the pre-amp outputs, the stereo analog inputs will pass to the record output and on to the TV. Added benefit: no volume control on the record outputs, so you can use the TV's volume control. Voila: audio to the LCD TV separate from the surround audio in the theater.

The one wrinkle here is the Blu-ray player. What follows is a bit of brainstorming, so please bear with me. I don't have any idea if the left/right channels of the 7.1 Direct input go to the record output or not, but even if they did it would presumably not be downmixed. You could set up a separate input that used the same DVI input that 7.1 Direct is using and a stereo analog signal from the S550, but I don't know if the S550 has a dedicated stereo analog output (many players don't) and even if it does you would not really be able to watch Blu-rays optimally in the theater and the lounge simultaneously. Even then, though, you have a separate problem at the TV: the stereo analog connection to the TV is going to the component input, not the HDMI input. Even if you get audio to the splitter, you won't be able to hear it on the TV. All's not lost, though. Here's where my brainstorming took me:

One possibility here is to use the HDMI cable for audio to the TV. If you use dual-link DVI adapters at the 990 (which you may already have), it will pass audio from the S550 to the HDMI splitter. Failing that, just connect the S550's HDMI output straight to the HDMI splitter - since it's the only HDMI source you're using, you don't have to use the 990's DVI switching at all. The TV could then get its audio from the HDMI cable, just as it likely expects to. The 990 won't have touched it, and the settings will be based on what the S550 needs for its multichannel analog output. As a result, the TV will probably be getting a multichannel PCM signal that it will need to downmix to stereo. I don't know how well that will work, but it's worth a try...