I use a Chaintech AV-710 soundcard with digital optical out. I also got a new Soltek A64 board that has optical in and out, but I haven't tried it yet.
Your optical output will output a digital stereo signal for everything except sources that have been encoded with dolby digital. Your receiver should pick up this digital signal and should be able to use dolby pro logic on it (or any proprietary surround processing like Logic 7 in the case of my HK).
When you put in a DVD, the output should change to AC3 and with the appropriate AC3 filter installed, it should output a signal that your receiver should recognize and give you accurate DD sound.
Generally the optical output will be a better option than 1/8" stereo signals adapted to RCA. By using optical, you'll not use the DACs that your motherboard has. These tend to be of low quality until you spend a lot on an upper level soundcard. By outputting a digital signal, you let the DACs in your receiver to the work, and with a decent receiver, these should be good ones
.
A good place for affordable optical cables is partsexpress.
examples:
3' dayton
6' dayton
12' dayton
I'm using a couple dayton audio cables now ant the build quality is excellent.