Dolby Surround Upmixer - Bad for Sound Quality?

Is your sound bar stereo or surround? Many sound bars take a surround input and produce a quasi surround effect through their speaker array. Being that it takes an optical input I'd say that's probably the case. You should output the highest quality audio
to your sound bar that it can support.

Digital Stereo and Dolby Digital output in different formats, PCM for Digital Stereo and AC3 for Dolby Digital. Your sound bar might just not be able to handle the PCM stream for some reason. You should confer with your sound bar's manual to make sure that
it fully supports whatever you throw at it.

It sounds like Dolby Digital works just fine with it so I'd suggest just sticking with that. There's a good chance that it will sound better and it definitely wouldn't hurt.

It has been reported that Surround sound is in beta and can lower the picture quality

www.polygon.com/.../xbox-one-dolby-encoding-hdmi-audio-in-in-beta

It is certainly still surround sound, Uncompressed Digital still supports surround, likely even pumps through full 5.1... it just can't be called dolby digital... Turtle beach has it's own audio processor anyway that does a great job emulating full 5.1 surround.
I can hear footsteps just like I could on 360 all the same. Audio quality is still probably better than 360 because there's less compression...even without dolby.

They added Dolby digital 5.1 in the recent march update so the optical surround sound should work the way you are connecting the base station. Try re-pairing the headset to the base station or check if you have dolby digital selected and not a PCM option.

Advice for your surround sound system: If you can, always connect the optical sound from the source device (xbox) to your surround sound system. This will prevent any delay an extra device (your TV) may impose upon your audio since its going through one
decoder (TV) to another (surround sound system).

They are definitely forcing users to buy HDMI surround sound equipment to consolidate the HDCP dilemna. Too bad they don't realize gamers use headsets

to ICESTORM#: Regarding Dolby Surround Sound: MY CABLE BOX USES DOLBY SURROUND SOUND, IT IS ADVERTISED ON EVERY MOVIE I RENT OR WATCH. MY XBOX ONE HAS TO USE A SILLY BETA APP TO GET SURROUND SOUND THROUGH HDMI OUT BUT CAN NOT GET IT FOR THE OPTICAL OUT
PORT.