All ARC does is allow for return of audio sourced from the tv over the single HDMI cord. You're getting audio so ARC functions, but seems your tv cannot handle the codec involved in what you're using the tv as audio receiver for. Is it really worth running the xbox thru the tv for its 120hz thing?
Perhaps we are miscommunicating. I am not getting audio when I use ARC.
The audio signal travels from my XBOX to the TV as proven by the fact that when I switch my TV audio output to the TV's internal speakers I can hear the audio. Doesn't that mean that the TV can handle the codec? I would also think it can handle the DD codec since the ARC worked for the first 4 months I owned the TV.
From there the TV seems to have stopped sending the audio signal to the AVR. When the TV is set to output over HDMI/ARC, I get no sound.
The audio signal will, however, travel from the XBOX to the TV to the AVR over the optical cable.
As for the 120hz question, my kid says it matters - but I'm not so sure
Like I said, it works over optical so I could run it that way still take advantage of the framerate/refresh rate match or I could connect the XBOX to my AVR directly. But right now it's a matter of having something that once worked that no longer does and being concerned something may be wrong with the TV. It's an expensive TV and a decent AVR and I think it should work.