Marty,
Haven't managed to implement this myself yet (still waiting for the builders to move out of the new lounge) But according to the instuction book "YES" the system defaults to using the Optical input for the TV and the co-ax for sky, but you can swap them over in the menu. I've still got a couple of weeks to wait before I can get going with my own set up, so I would be very interested to hear how you get on with DAV-IS10.
Can't comment on the cable though. I have a cheap one to get me going, but I suspect I will be upgrading very quickly.
Cheers,
David.