The set of 3 component cables (the red, blue, green ones), are connected to the Receiver by component video Out. "Video 1/2/3 In" are going from the receiver to the cable box. And the cable box and reciever are connected by digital optical in.
For digital audio you need to verify:
1. Cable box is set to output digital audio. On mine there is a menu setting called 'digital audio out' that can be set to Dolby Digital or Other (which is PCM). Set it to Dolby Digital.
2. Press the digital input button after pressing whichever input selector you are using for the cable box (video 1, 2, or 3) and make sure it says opt1 or whichever optical input the cable box is connected to. Make sure that no other input selector is assigned to the same optical input.
3. Press and hold the digital input button until it shows the digital input format. It should be set to Auto (which should be the default anyway).
That is all it takes to get digital audio but there is one catch that may or may not apply to your situation and that is that some cable channels, even on 'digital cable', do not broadcast digital audio. If you were tuned to one of them, you'd get no sound unless you also connect the red/white analog audio cables to the same Video input and have the input format properly set to Auto.