This behaviour of only working with either optical or analogue is a
limitation of the SE and LS model Audigy cards, and probably the chips
themselves.  This will be why you need to disable iec958.  See the
wikipedia article on these here:
http://en.wikipedia.org/wiki/Sound_Blaster_Audigy#Sound_Blaster_Audigy_SE_.26_Audigy_Value

I can confirm though that the workaround does work to get analogue sound
- but the diogital portion is broken.

The digital portion of alsa does work though, as i have got it to work
using the same cable/amp setup that i was trying to use for my Audigy LS
in my htpc on my Acer Aspire 5738G that has iec958 output.  This uses an
nVidia MCP77/78 HDMI and for some reason has three iec958 boxes - all
three need to be checked for the optical output to autodetect and work.

So in this case - you can narrow this down to only the optical output in
alsa being broken and that it should not be switched on by default for
ease of use for the average user.

That being said - should a seperate bug be listed for the optical not
working at all?

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https://bugs.launchpad.net/bugs/964554

Title:
  [CA0106 - CA0106, playback] No sound at all

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