So this is weird. I believe i've found the Solution. I had to make speakers as my default device instead of spdif based off what Dryker said. Quote below I've disconnected my Analog cables and only my Optical is connected IM ASSUMING its working through SPDIF right? But im still having Issues...
Im having trouble setting up my Logitech Z906 with my Creative Sound Blaster Z and
installing Dolby Digital Live.
1) using analog cables im able to get proper 5.1 surround sound.
2) However i want to use my fiber optic cable for some reason every time i set:
"SPDIF-OUT
Sound Blaster Z" As...