Reference Version: R5F1
After doing a lot of searching to try to find the solution to this problem, it turns out it is a really simple one. I have a KnoppMyth system set up that I am using a ChainTech AV710 sound card on (I give high recommendations to this card) and I configured MythTV to use SPDIF to get audio output but simply changing my audio output device from /dev/dsp to /dev/adsp and everything worked a-OK except for playing DVDs. I tried playing with the settings in Xine to get it to work and I couldn't obtain ANY audio (5.1 or not). After doing some googling on the subject, I found a HOWTO over at the Ubuntu forums and the solution was quite simple.
For the applicable output devices, simply use "plug:iec958" and select the speaker configuration as pass through.
Thats it, your done. Restart Xine and all should be merry. As soon as I started playing a DVD I didn't just have audio but my receiver's little DIGITAL light came on. Reference Link