I was looking at possibly spending my Christmas money on a 360 so I would then have all 3 systems, but I came across something that puzzled me.  I realize that I will get full surround sound if I choose to hook it up via HDMI, but how do I get surround if I choose to use the component cables?  The red and white composite will only give me stereo sound and I didn't see an optical audio output on the back of the system at the store.  The PS3, for instance, will allow me to do component for video and optical for audio.  Without an optical output on the back of the 360, how were people achieving surround sound on the system before the HDMI output was added?  What am I overlooking here?

The I/O connector for the video has optical on it.

That's a little strange.  Was it a cost-cutting measure to not have 1 on each system?

You need the dongle thing to use optical with HDMI. Yes it's lame.

They did it to reduce heat ~_n

OT: Yeah, the fiber optics is on the actual dongle. I actually thing it's a good idea though, If your fiber optics laser ever goes out, it's easy to replace. You never know what kids want to stick in places.

That wasn't his question, he asked about surround (optical) with component.  It's right there on the component cable.

http://forums.electronicarts.co.uk/xbox-360/367086-hd-no-sound.html

The Xbox 360 has an optical output that carries the surround sound signal. You need to plug an optical cable into the Xbox 360 (it plugs into the video/audio output component cable) and the other end into your surround sound system.

Component:

If using HDMI you'll get one of these with an Elite:

Optical cable:

To confuse things even more if you have an HDMI input on your surround sound system you can pass the audio through the HDMI cable too.

Someone already answer that to him.  I just point out regarding the HDMI.  In either case it's still really lame.

This is how I get the surround sound from my Xbox:

HDMI for video and the dongle + optical cable for the sound.