Greg it sounds like you are still not getting DD. You only need the digital connection from the DSS to the A/V reciever and the S-video to the TV to get DD.(You must make sure on Your guide on the DSS that it list a DD. signal)as of tues. channel 110,520 are the only two and 800 in the day time.Usually when a movie is listed as letterbox it is in Dolby Digital (Example the movie Life is on 109 no DD. and Letter box with DD. on 110) Your A/V reciever should light Dolby Digital or a series af LEDs showing 5 channel Audio and .1 for Subwoofer when it is recieving a true Digital singnal, You can check this with your DVD player.
You can run the rca audio directly to the A/V reciever from the DSS. reciever if you are not going to use the internal speakers in your TV.
What A/V reciever are you using and does it have S-video Switching?