You say that the optical inputs are assignable on your receiver, but did you assign the one that you are using?
number 1 is the coax input but it has both optical and coax jacks on the back. i tried that one, tried the assignment, no luck
number 2, 3 and 4 are optical only. tried the 2nd jack, tried the 6 different combos of assignments but no luck there either.
Have you tried more than one optical input, to see if one just isn't functioning?
i tried 1 and 2, will try the other(s) later...
Have you tried more than one optical cable?
no - just bought the one from radioshack a few days ago.
Did you take the little plastic end caps off of the optical cable connectors? That's not meant to sound patronizing - it happens more often than you might think.

yes i got that part right. i thought of that when i unpacked the cable - wish i knew where those little clear nubbies were now in case i'm just outa luck and have to return the cable...
i think its the receiver - i just chatted with LG's support and they say that the output and the tv speakers will work simultaneously but may not synch exactly so that's why they give you the option to turn the tv speakers off.
i'm looking into jvc support now to maybe get someone there to walk me thru the process - wish they had the live chat feature on their site like lg has...