defective s/pdif port out of the box

Hi

Don't worry about the red light you can see from the S-pdif port on the back of the console this is perfectly normal. The s-pdif port is and optical audio out connector on the back of the console and uses light to send sound from the console when connected
to a suitable receiver/soundbar.

Try this setup. Connect your receiver to your TV via [whatever audio cable you use], then have the HDMI cable going from your TV's HDMI In port that you're using to your console's HDMI Out port. If that doesn't work, try using a S/PDIF cable (also known
as, an Optical Audio cable) going from your receiver to the S/PDIF port on the console, then still having the HDMI cable going from the TV to the HDMI Out port on the console. Usually, having an HDMI cable going from a receiver into the HDMI In port on the
console doesn't work, because it's intended purpose is only as pass-through for a cable or satellite set-top box. Good luck!

The Xbox does do sound processing console side (via both S/PDIF and HDMI)

Sorry, I don't understand "Only sound options on sky boxes relate to optical output so do not effect hdmi sound channel." When S/PDIF is used HDMI sound is muted (via Sky box), yes?

- I was going to suggest try S/PDIF to the Xbox and sky box. As it is a variable... it may be worth looking into.

Let me know

-Cheers

i'm in the same boat as you, i know we need a converter to change the s/pdif port to component after that i dont know! let me know if you find something out

It looks like a standard 2 HDMI ports to me

The Picture i looked at,

Power

HDMI Out (TV)

HDMI In (Cable)

USB (Kinect)

USB

IR Out

S/PDIF

Ethernet port.

This is in order from left to right.