Coaxial or fiber optic i/c for Dolby Digital?

It depends on the length of your digital cable.
For the long run optical is preferable.
On the short one (up to 2-3 meters) good coaxial is much better.

To add some recommendation, depends on your budget range, I would recommend Kimber http://www.audioadvisor.com/store/mfglisting.asp?hdnMfg=Illuminations&MFGID=58.
I am using Audiodine in my system.
Of cause there are JPS, Synergistic, Transparent.
Good luck!