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Yes, you want to connect your DVD player with a coaxial or optical cable. You could also connect it with 6 analog cables, but this would only be beneficial if your player does SACD/DVD-A, or if it has some kind of special processing that your AVR does not.
On the back of your player, you shouldn't be looking for *inputs*; you should be looking for *outputs*. Look for something marked "digital audio out" or something. The jack may be orange for coax. If there's a optical output, it may have a plastic cover on it.
You may also need to go to your DVD player's menu to set it to output the digital signal. Likewise, you may need to set your receiver to look for the digital input.
By the way, there isn't really much difference between the coax and optical connections, as far as sound quality is concerned. Personally, I prefer the coax connection because it's easier to damage the optical cable. Plus, you can always use a regular video cable for the connection.
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