1. How are you converting TOSlink to SPDIF? This is on your master computer? That would make sense sense the final output would likely be just stereo.
Instead of having an audio interface on the remote machine, I use the built-in digital audio. This is a temporary solution, since it's only two channels and I'd like to have eight. I picked up an M-Audio CO2 on ebay for $25; it converts optical S/PDIF to RCA S/PDIF, which I have plugged into a MOTU box on my main G5.
I also have three PCs connected to a 2408 box on the G5 via lightpipe. They all have sound cards (Frontier Designs Wavecenter).
I'd much rather stream audio over ethernet, at least from the slave G5 into the main one instead of using TOSlink, but so far none of the solutions seems to work. Wormhole and Jack OS X have unacceptable latency, and AUNetsend/Receive (included in OS X 10.4 - I'm not sure if you can use them in DP) stars out fine but then the latency gets progressively worse until after half an hour it's literally three seconds.
I'm going to post this and continue...