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I forgot to say, I bought an optical cable, but not sure whether to plug it into the DAV-SC8 and PS3 or the TV (tried both) and not sure which settings to change in TV and/or PS3!
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It has to be connected to the DAV-SC8 and I'm pretty sure you can select all the audio options as it will automatically select which ever signal is being used.
Just make sure you select the optical for the sound output options...
It's not a simple case of selecting the correct sound option on the DAV is it? Make sure you are definitely selecting Optical on it when using the PS3.