Stifko, the link to the manual for that stereo system is here:
XRH66MD Aiwa Manual in PDF Format
Btw, it records from CD to MD digitally, records from radio, and has the goofiest feature....it'll let you record karaoke - as in your voice and the sound from CD onto MD (or just your voice, your choice). Weird feature to bother with, but it's there. I've used the record from radio feature, it comes in handy sometimes 'cause it'll record 2 1/2 hours and can be set on a timer so I don't miss something I can't be around for. It says that the digital in works only for CD, but I'm eventually going to test that out by hooking up my DVD player and we'll see what happens.

Kinda curious about that.... Anyway, since I'm not getting a kickback for selling the darn things I'm NOT going to try translating the whole manual for you (which of course really means I'm not entirely sure WHAT else it'll do...hehehe).
Hope this answered a few questions for you...
EDIT: It's official, I'm manual-reading handicapped! Doh. The optical OUT is from CD, the optical IN can be from any source. So yeah, DVD players, etc., should be able to run through it and be recorded from. Hmmm...