First, Did you try connecting your wdtv to avr using composite a/v cable. If that works fine, then I guess something wrong with the audio settings on ur avr.
Secondly, Did you also try changing the right audio-in on your avr? like optical-in in your case.
If you have selected the right audio-in, then something wrong with the cable, probably.
Yes i have set the audio option as digital.And have tried bot the optical ins on my AVR. Had a talk with MBR and he says there should be a light glwing at the optical in end of the cable.Don't know where it should glow,but there is no light.
sri