There is no difference between the quality of optical and digital. The optical cable is a bit more fragile--doesn't handle twisting or severe bends quite as easy, but it's not susceptible to any interference from other wires or components. I use both types of connections and can't tell a difference.

I prefer digital because it's less problematic. One time I unhooked one end of an optical cable and let it rest on the dusty shelf--the lens got dirty and wouldn't transmit sound after that. Now, I always hang on to those little plastic caps.

Hooking your CD player up to your receiver via optical/digital will utilize the DAC in your receiver.

As far as your Blu-ray, I'm not sure if it will pass a Dolby True HD or DTS HD signal via optical or digital. From what I understand you must have an HDMI or analog connection. Hopefully someone with a Blu-ray player can chime in.

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"Nothin' up my sleeve. . ." --Bullwinkle J. Moose