Some random thoughts on all this:
Agree with comment on Monster cables and sales people.
There is not much on this planet more annoying than people arguing over the quality of their wire (analog signals only). If a $5K or greater audio system is in a "normal" room of a house, it's a waste. The acoustics of the room will be the limiting factor. Stuff I used to work with the rooms cost $100 to $500K to trim out. Think high end, high horse power tractor and a light weight, thin metal box blade. All parts of the system must be matched and balanced.
SPDIF vs. Toslink: they have the same signal on them. The signal is digital, so quality is not an issue. SPDIF is over copper, Toslink is optical. I have a Toslink (in) to SPDIF (out) box that I used when I was working in this area a decade ago for times when a device didn't have the Toslink. The win of Toslink is in great big systems where you have some hum. You can get rid of yet another ground connection.
SPDIF is a confusing term in the following regard: There is an encoding of the digital information which can deliver two stereo digital audio signals over a single wire (or optical fiber). Sometimes that encoding is indeed just two stereo channels, but, the same encoding is used for Digital Dolby (surround sound). This should make sense- the world was set up for digital audio and then the surround sound came along and had to "fit" in that space. So a "digital in/out", "SPDIF in/out", or "surround in/out" all all valid terms and it takes additional information about the system or even the program content and encoding to know what's actually there.
HDMI cables have multiple pairs of digital stuff. There are high speed digital lines that have the digital video and audio. There are lower speed digital lines where the source and destination discuss what they are and what their capabilities are. They also discuss if the connection should be allowed in an attempt to slow down piracy of movies and music. Most of the problems that were historically seen with HDMI were in these discussions between the connecting devices. This processes is how a 720P only display can talk to a video source so it could adjust it's picture resolution accordingly. When using a HDMI TV as a monitor on a PC, it's how the PC knows the maximum resolution of the screen.
Digital audio and HDMI are by and large unidirectional beast. When things get really confusing, force yourself to use the words "in" and "out" when describing things. So, "your SS digital in comes from the satellite digital out." The picture you have in your head now gets clearer.
Finally, a "here's how I did it" so that everyone can be confused. We have his and her satellite DVRs, and a 13 year old Dennon surround sound receiver. The HDMI out of the DVRs go to the TV, which has multiple HDMI inputs. The TV also has a digital output (Toslink in this case, but spdif would also work). I take this TV digital output to one of the digital inputs on the Dennon. I leave the Dennon set up on that input. I use the TV remote to select which DVR or off air I want to watch. The TV then takes the digital audio (be that stereo or surround) for whatever I'm watching and sends it to the Dennon (TV digital out to Dennon digital in). The Dennon, like most of these surround processors, has the ability to "look" at the bitstream on an input and decide if it's stereo audio or surround sound (dolby digital). It then does all the right stuff processing the audio and drives the speakers. In this way, I don't have to change the TV to a source and then also change the surround processor to that source.
If I have a DVD I want to play the DVD player audio and video out is connected to the surround processor analog in and then I do have to change the input on the surround processor. Some year when I get a new DVD player, I'll connect it's HDMI out to the TV's 3rd HDMI in and things get even simpler. There are also HDMI switches you can use if your TV doesn't have enough inputs.
I got all my cables on line (don't remember where). Like many tractor projects, doing it right is difficult when you're only supplier of materials are local sources and Wally world. So introduce a week of wait and shipping charges and you can get what you need to do it right. I actually have all the electronics in the basement except the TV and DVR because I hate looking at a pile of gear. I got a 35' HDMI and toslink to get to and from the TV. For long cables the key is to get cables with a big wire gauge, like a 22 gauge wire.
We also took the component out of the DVRs and ran them to the bedrooms, with the stereo audio on two pairs in a Cat-5 cable. Brought infrared back from Dinkly Link devices. This lets us use the DVRs in either the TV room or the bedroom. The component video part of that setup is 75' of RG-6 that was laid out on the floor and cut to the same length (3 runs). F connectors, the F to phono, works great.
I also see no reason why you can't use the surround sound processor/amp as the hub, just use the TV as a display, and have the surround receiver drive the speakers, but, the OP was wrestling with surround sound processor issues and this mode is what most manuals for systems will advise as a means of connection. So you leave your TV fixed and use the surround to select the source. My system is the other way, you leave the surround processor fixed and use the TV to select the source.
For what it's worth, the quality of the electronics in most surround systems these day makes any modern system in the $700 class better sounding that what was $3-5K a decade ago. If my Dennon died today, I'd get a good system. The digital side is all good, my main criteria would be the THD of the system and available IOs for connecting stuff.
Yeah, it's another long Pete Post...
