I have the same issue. It started just after the latest software update from Apple. I've troubleshot the problem using two audio systems and another computer. The audio systems and the cable are not the issue, they work fine with the other computer, which does to have the updated software.
I was on with tech support for over an hour and the issue has not been fixed. They suggested reinstalling the operating system as it was before the update. Will try that tomorrow.
After spending two days troubleshooting with Apple's Senior Tech Support they concluded the issue is the with the digital-optical port driver. It doesn't work with the latest OS 10.7.4 update. They suggested I contact the manufacturer of my DAC. I did, and here is the response:
"This is the first I've heard of this exact issue but we have been hearing of a few issues with Apple's OS when they've done update changes. They have been having some wifi issues that are causing other problems too. Starting to sound more like Microsoft every day.
This is a driver in the Apple device controlling Apple's digital toslink output. It is not something that we could provide because it is an Apple issue in an Apple device. Unfortunately you will have to stay on them to get this driver updated. Hopefully and typically they are fairly fast.
The input on the CD306 is just a standard digital toslink input and has no special needs. Stay on Apple and watch the forums for assistance. The more people write or call them the faster you will see the driver.
This is your best shot."
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