If your speakers are good like the Logitech Z-5500's, they'll have an optical audio input (also called Toslink), which you just plug an optical cable from the Xbox360 into.
What kind of cables are you using from the Xbox360? VGA looks a bit better than component (but component at least isn't washed out like before since they patched it in firmware). If you've got an Elite you can use a DVI to VGA adaptor on the 2407 for awesome picture quality.
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If you don't have an optical audio input, you will need to get an adaptor and convert the stereo RCA cables (yellow and red audio cables) into the standard audio jack connection.