How come DAC and Cable dont mix?

Might ask the local company... CATV mega-companies were generally formed by acquisitions, so there isn't really any standardization, even in systems owned by the same parent (my provider--Comcast--uses Sci. Atlanta STBs, but their system in DC, only 4 miles away, uses Motorola STBs). I have a Sci. Atlanta STB that I can configure to output PCM compatible with my 2CH DAC--my last two STBs by the same mfr couldn't be set up that way.

Dishnetwork outputs PCM via toslink. I just upgraded to the Dish 622 HD box and it gives me a choice of Dolby feeds or exclusive PCM. Yes, my better DAC is an improvement in sound quality.

Your D/AC may have too low a kHz rating to decode the signal.

Too low a kHz rating? You mean sample rate? Redbook CD, which most DACs will conform to will do 16 bits at 44.1 kHz. While some DACs are built for higher sample rates and word sizes, the incompatibility with video-based signals is going to be due to surround sound incompatibility, not sample rate. In other words, a lot of video devices are trying to supply, as Reubent observed, a DTS or Dolby digital stream--that is different from a standard PCM S/PDIF signal used for CDs and the like. I can't imagine a digital source that works at higher sample rates that won't downconvert to standard 16/44.1 PCM.