Introduction
The Xbox and Xbox 360 AV cables come with digital audio outputs in the form of optical outputs. I never understood why anyone used these. The cables are expensive, you can't use standard cables you have lying around, you can't use simple A/V switches and the quality is the same as coax digital audio output. Since the signal is the same, Iwanted to add coax digital audio outputs on my Xbox 360. I got the idea from reading Matt Staroscik's instructions for the original Xbox. They can be found here. I woudln't have known this was possible without his help.
These are basically the same instructions, just for the Xbox 360. I've done this to two different cables. The first is for the AV cable that comes with the Xbox 360 upgraded system. It has outputs for HDTV as well as standard. Next, I did the same thing for the S-Video cable T purchased to use with my TV.
Standarded warnings: This modification is not recommend if you don't know what you are doing! You can seriously damage stuff! Microsoft will not support stuff you modify. The cable i bought was $15 so you won't break the bank if you mess up. However, if you short something it may break your Xbox. I'm not responsible for any of this!
HDTV/Standard TV cable: Pros - Easy to open, Cons - Harder to get the new wires out.
S-Video cable: Pros - Very easy to remove the optical output and run wires out of this slot, Cons - Harder to open, a bit destructive to the case
Both modifications take about 10 minutes and require the following:
HD/Standard TV Cable
Use a small screwdriver top open up the two halves of the gray casing. I found it is easiest to get in between the metal plug and the gray casing. Be careful as the plastic is soft and you will scratch it. If you dont' care, then dont' worry about it.

The arrows show how the casing is held together. Just seperate them. Work the screw driver around until it is seperated. Next look at the crimped part of the signal cable. Uncrimp this enough to remove the top of the metal casing. The exposed compents will look like this:

Several things to look at here. The black cube is the optical digital out. We need to get under it. Also look at the five colored wires next to it. These unplug to remove from the circuit board. Also, you can uncrimp the singal wire more to remove it. once you do this, be careful as the tiny wires are fragile.

Remove the electrical tape below the colored wires protecting the 5 points. Don't lose this. Next, pay attention to the 3 points i have arrows next to. You need to unsolder these to get the circuit board off of the metal casing. This is when a desoldering iron is worth it's weight in gold. When these are loose enough, the board lifts off of the metal casing. Since the HDTV/Standard TV switch is just below it, you have to lift at an angle.

Here's a desoldering iron. I bought this at radio shack. Heat up the solder until it metals and then squeeze the red thing and let go. The solder sucks back in. Its pretty neat.
When the circuit board lifts off, you are set.

Unplug the wires from the circuit board.

This is the top view, but what we are interested in is the bottom

You can leave the optical plug installed and connect wires to get the digital audio signal. The one nearest the switch is the signal (positive) and the one on the end is ground (negative). Connect small wires to this.
At this point it's up to you how to get the wires out. Depending on your needs and looks, you could do several things. I removed the plastic switch that switches the TV on the inside. I ran the wires out of the metal casing next to this switch and out the gray case where the plastic switch would have been. You could also use tin snips to cut a small hole in the metal casing to run the wires out of there and drill a hole in the plastic case. It's really up to you.
S-Video Cable
This type of cable is a little harder to get into. I torn mine apart, but i learned a little about it. Maybe you will have better luck. Unlike the HDTV cable, it is held together by tabs that lock, and is hard to unlock them. Mine ripped off as i opened it. If it happens, oh well, it does not affect performance. Start by putting a screw driver between the metal plug and the gray casing and go from there.

You are left with components that look like this

It is much simpler than the HDTV cable.

One key advantage is that the white wires are the connection to the digital out. Look closely at the circuit board and you will see what each one does.
Like the other cable, you are interested in the signal and the ground. You can see the middle one is for a voltage (to power the optical light). Since I thought there was a chance i would want to use the optical jack again, i marked the wires appropriately so i could reattach them some day. If you looked inside the metal casing, i'm sure you coudl see what wire went to what, but i used the simple method of marking each wire with a certain number of dots with a Sharpie. One dot for ground, two for VCC and three for signal. This is optional.

Unsolder the three wires, cut hte lead off of the VCC and cover it with electrical tape. You dont' want this shorting anything in your cable. Next, connect your external jack to the proper wires, and use heat
shrink wrap for good measure.

I chose to tape down the wire to the case because i'm not planning on unplugging this often or moving it around. If you travel with yoru Xbox, consider tying a knot in the wire so it doesn't pop out of the plastic case. THe best thing would be to buy a rubber grommet that will let hte wire go through and fill in the space around the opening. It's up to you.

Lastly, put the plastic case back together. Now you see the effects of taking apart the case. It would not stay shut, so I had to tape it shut. Consider gluing it, but it will be harder to get back in there. The way i look at it, you rarely look behind your Xbox.

This is my cable in action.

And here you can see that it is giving a nice Dolby Digital signal to my stereo.
If you run into problems, remember if these short out they will play anything. If the signal is poor, same thing. You won't have this problem with analog signals. Consider hot glue gunning connections to keep them from moving. Do not move things around too much as the components are fragile.
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