First, don’t alter PulseAudio Volume Control settings – I had “Analog Surround 5.1 Output + Analog Stereo Input” selected for my USB sound card. Let it be as it is:
What you need to tweak is AlsaMixer – run in Terminal:
And hit F6 to select your sound card – in my case it’s “USB Sound device”. Use right arrow to select “PCM Capture” and by Up/Down keys pick “IEC958 In”:
Esc to close AlsaMixer.
In sound capture software like Audacity make sure to select:
Audio Host – ALSA
Input device (in my case) – USB Sound Device: Audio (hw:3,0): Line:0
Make sure audio is on from TOSLINK cable and try to record. I was successfull to record stereo stream (PCM 2.0) coming from my Samsung Smart TV:
I didn’t try to send Dolby 5.1 or DTS sound through TOSLINK, but I believe Sandberg USB Sound Box 7.1 supports stereo only through digital ports. When I bought the device I had hard time trying to output Dolby 5.1 through S/PDIF to home theatre system – all it was receiving was PCM 2.0, so I assume input is stereo-only as well.