The TV has a digital output most likely because it has a built-in atsc tuner. If you were using the tuner in the tv with an antenna you could then use the coax s/pdif to connect to the receiver so you would get digital sound from the internal tuner.
If I understand correctly, you now have the dvd player, cable box, and vcr connected to the tv with analog cables and one single coax cable from the tv's digital out to the receiver. So you only have to select one input on the receiver to hear all sound. That tv must convert analog inputs to digital if that is the case.
You will still get surround that way but not the original DD or DTS from the dvd player or cable box. If the cable box is receiving a digital signal or the dvd player is playing a disc with DD or DTS and you connect those devices to the tv with analog cables, they will convert the digital signal to 2 channel analog which is now sent to the tv. The tv in turn will turn it into 2 channel digital and send it back to the receiver. If the receiver is set to use a matrix decoder like PLII, it can turn it into 5.1.
Your setup is actually backwards from the way it is most often done. You want all audio to go to the receiver and a single video connection to the tv, that is if your receiver can switch video. Then when you switch the input on the receiver, the video will switch too and you never have to touch the tv input. If you aren't using the tv's internal tuner, then you don't need to use its digital out. The way you had it originally is the way to do it if your receiver can switch video - you don't need to get audio to the tv unless you need to use the tv speakers.
What tv and receiver are you using?