Mac mini and optical output problems

I have just purchased a new Apple Mac Mini connected it to my Tv via HDMI and now am having problems getting the sound working.
I have connected via optical output and the cable itself works and I can see red lights at either end.
When plugged into the Mac the 'optical output' is greyed out(it does change when plugged in)
When the volume control comes up it has a circle with a cross through it.I have tried what i consider most 'normal' things to try. Currently doing a update of the Mac software. Please Help, PLEASE!

So you have connected via a Mini-Jack -> Toslink cable from the Mac Mini to your receiver? You haven't specified what cables you are trying to use. My guess from the red circle with a X through your digital output is it may not like the cable you are trying to use.
I have the above described setup but I am able to select Digital Output in Sound Preferences. The volume control is greyed out for some reason but does not have a circle with the cross through it so I just control the volume via the receiver itself. iTunes still allows me control of volume, as do other video/audio controls in the web browser etc, it's just the main OS X volume control that is inaccessible.
Strange, but liveable.

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