Progress report, what I know so far:
After much searching I havn't found a single Receiver which supports 6ch AAC over S/PDIF (exceeds the spec bitrate it seems). And the current method xine uses to handle AAC via S/PDIF causes it to output in PCM mode only sending the L/R channels, no centre, no rears, no sub. An HDMI audio connection should not be affected by this as it can handle 6ch of PCM.
There are three ways to deal with this:
1) Use analog 6ch outputs from the MD to the receiver and configure ALSA accordingly (best sound quality, I don`t think AVWizard supports this currently but I havn't checked)
2) Have xine re-encode the AAC to AC3 (or DTS preferably) for S/PDIF output 'on-the-fly'.
3) Have xine down-mix to 2 channel stereo for PCM or analog output and de-coding by a Dolby Pro Logic dsp. (I REALLY don't want this)
I don't have enough cables, currently, to test #1, and I'd rather not do it this way (even though this gives a much higher sound quality due to lack of compression). My cats love to chew wires and the fewer I have the better.
I would prefer #2 above but I have not figured out how to implement this functionality in xine_player (or even if xine has this functionality). This is easy to implement with MPlayer (but would require playing all .mp4 files with mplayer... not desirable.)
So... I am slowly reading up on xine and trying to push my way through (learning) some c++ coding in the spare time I do have. For now I am resorting to playing .mp4 files with 6ch AAC using mplayer from the command line. But I am hoping to figure a way to have xine convert 'on-the-fly' when an S/PDIF output has been selected in avwizard.