Thanks Guys,
I was going to wait till I got home but she called and is home fussing with it so I looked up the PS3 online manual and found the setting to ensure the optical out is engaged and another to use bitstream so the PS3 does the decoding.
That should be the band aid solution. The receiver suggestions are still good to have though because she currently has only one optical in on her receiver so she has to change cables from her satellite TV box to her PS3 all the time.
She could also use a good universal remote to simplify the switches for her but she needs baby steps.
