I have hit this exact same issue on Feisty.  I had been successfully
using SPDIF output for the last couple months.  I tried ripping a DVD
for the first time the other day in mythtv and when I played the file
back SPDIF no longer worked.  I verified that the analog output works
and the odd thing is that I can see the red laser light on the optical
cable.  I did not modify any system settings or volume settings, it just
flat out stopped working.

I have been testing audio by going to Preferences->Sound and trying to
play the test sound.  So far I cannot get the sine wave to play using
any of the devices.  I have validated my stereo receiver and digital
audio output from the computer using another bootable distribution.
Something is broken here.  This bug should be re-opened.  I will provide
any details you need.

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Alsa loses AC'97 SPDIF output in Feisty
https://bugs.launchpad.net/bugs/118861
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