oex is right. Save up the money and replace your weakest link - the Aiwa. Everthing we're talking about is a bunch of bandaids. The entry level Yamaha RX-V450 ($300) has a component switching and both an optic an digital coax input.

This receiver would solve your challenge and vastly improve sound quality while sporting the proper switching and a cleaner look without all the dumb buttons.

A good receiver won't drop your digital coax signal - I think the problem is either in the Aiwa or the old DVD player. Aiwa is not known for their uncompromising quality.