I would answer yes, yes, yes and then after the system comes up, use alsamixer from a terminal session and turn on all of the IEC958 stuff. I noticed that a few times in the AV Setup Wizard, that I did not get sound, and you want to be honest and answer "No", but in the end, doing so tells LMCE not to configure your optical output.
Try it again, aswer, "Yes" to all sound prompts, if you hear it or not, then after the system comes up, open a term session to it, and play with the alsamixer settings.
How I did it was, I fired up a dvd, got it playing, and then from my laptop, logged into the MD and launched 'alsamixer' and played with the options, until there was sound.
Give it a try, can't hurt.
Regards,
Seth