HDMI for video / Coax Digital for audio????

HDMI has (much) higher bandwidth than coax or TosLink. If you want to be able to playback ALL of the multi-channel formats, including the new Dolby Digital and DTS formats, you *must* use the HDMI connection.

You would only get two channel downmixed lossless over coax or multichannel lossy (e.g., DD, DTS).

Since I have a 2 channel home theater set up, I use the arrangement you are suggesting with HDMI to my Panasonic Plasma for video and coax to my EMM Labs XDS1 for audio (lossless 2 channel).

I use HDMI for my video portion, but audio analogue for audio. It requires 6 cables...1 for the powered sub, but I let my Blu-Ray player do the conversions that sends it to the receiver.