I can also verify this exact bug on my setup. I am actually amazed that
anyone else had it given the uniqueness of my setup, but great =)
Similar to other posters, muting the IEC958 channel in the alsa mixer
removes the distortion. I am running Ubuntu 11.04 on this computer,
AD198x reported as the alsa device. Thanks for the workaround at least!

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https://bugs.launchpad.net/bugs/359361

Title:
  ALSA SPDIF Digital output clipping / crackling during playback

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