Thanks for the replies fellas. Yeah, I have a cheap Toslink to mini digital cable and but it seems to be working fine. Just wondering if the one I bought was too cheap.
I tweaked my iTunes and got rid of the sound/equalizer options. I think the biggest problem I was having was using the Apple Time Capsule wirelessly. Not very compatible with windows XP as I had to keep re-mapping the network drive. Got rid of it and now keep my music on a connected external hard drive. Music now sounds unbelievable and I'm very happy. Thanks again.