I found a solution to VLC here is a post in a thread
Realtek Codec: ALC888
Audio Driver Version: 126.96.36.19932 (20/12/2007)
Direct X: 9.0C
Settings Inside VLC:
Preferences / Audio / Output Modules / Audio Output Module = Win32 Waveout extension output (without this setting I got stutter)
the url is : The VideoLAN Forums • View topic - spdif or not?
still no luck with Windows Media player, it would be nice to know if there was a fix, but I prefer VLC anyway. ALso the main thing was for a mythtv frontend, which is also working.