HDMI in - Bypass or Optimization?

I would say both. The HDMI in is a bypass mode for your cable TV guide. You would use Xbox One's One Guide for TV

It is also optimized if you have a Kinect. I do love changing the channel by just saying the name of the network I want to watch. So much easier.

The console is connected directly to the TV. Is there a way to bypass the HDMI output to the TV by using an USB/HDMI adapter? I am just trying to exhaust all ideas.

Also try a different HDMI port. And if you have a receiver, bypass it for now to see if it works.

[quote user="Big Sist3r"] Shouldn't choosing Dolby 5.1 cause the box to bypass HDMI sound and send it to the receiver via toslink exclusively?

[/quote]No, either or both of those methods of output can and will send out Dolby 5.1 sound.

[quote user="Big Sist3r"] Am I just gonna have to mute the TV?

[/quote]You could do that, or turn the volume down to zero, or disable the TVs speakers. Personally I just have mine turned down to zero with my Xbox setup. In another setup I have the TV speakers disabled altogether.

I've heard that HDMI signals have no region lock though, and bypass such limitations, working on televisions from any region.