Disclaimer: This is not a scientific experiment, and likely only applies to video games, movies are a different animal. I recently hooked up my new Xbox using both a Optical audio cable, for Dolby Digital surround, as well as standard analog cables for use with Pro Logic 2. The results surprised me: 1.) I found the surround effect to be BETTER when using PL2. Through the optical cable, the sound was certainly directional, too directoinal for my tastes. When playing Knights of the Old Republic, an onscreen character would pass behind my when talking, and the sound would abbrubtly chnage from the front to the rear speaker. Very artificial. This same effect was noticed with gunfire, footsteps, and so on. I attribute this to the on the fly encoding, but I could be wrong. In any event, I found the excessivelly directional sound to be distracting. 2.) WHen switiching to Pro Logic 2, sound effects became much more smooth. Front to back pans were no longer as abrupt, but rather travelled more smoothly and gradually from speaker to speaker. Even though it was not truly discrete audio anymore, it certainly sounded like it was. One thing to mention was that the audio was somewhat quieter and muffled, compared to the Digital signal. I think this could be simply because I had the analog audio cables routed through my TV, rather than directly into the reciever, and because the quality of the cables provided with the Xbox isnt great to begin with. One area where he true dolby digital sound was superior was in ambient effects, which were clearer and more precise. In the end I decided to use the analog connection for the time being until I buy a second optical cable (the one I used was borrowed from my DVD player), and I am surprisingly content.