If the TV is outputting anything other than Stereo PCM, the DAC will not decode it. Some TVs may pass Dolby Digital through. There will usually be an option to switch to PCM only, if the TV doesn't have the option, try changing the output of your source.I have no idea where the defect is, but it’s a defect. Is it possible that the TV just passes the digital signal from a broadcast through? It seems me that at some point the TV has to process the signal and extract the audio and video. My LG has about half a dozen modes for audio out, but they are disabled when you select optical only.
Also, try the DPLL settings (if it has them) on your DX7 Pro.