Optical versus RCA for Sound Quality....

Update! Airport Express Base Station firmware V6.2 fixes the optical digital audio output problem that causes a momentary loss of audio each time the bitstream is initiated. The new firmware provides continuous output so your DAC stays synchronized. Output remains bit-perfect, as in previous firmware versions, verified by playback of DTS audio.

I downloaded Airport Admin Utility V4.2, and the utility downloaded the Airport Express Base Station firmware V6.2.
http://www.apple.com/support/downloads/

I don't see the firmware on the Airport Support page yet, but I suppose it will soon be available there:
http://www.apple.com/support/airport/

If your home stereo has a optical digital input - the specs would indicate yes. However, "sound quality" is also highly subjective - and whether or not you notice the difference or find any difference worth the expense cannot easily be known before you try it.

Though some people argue that they give a better sound quality, optical ports are normally for multi-channel sound (like dts) without the need for an rca plug for each connection. Thus, by using an optical cable you should be able to stream surround sound. I know that some music albums (probably only on DVD-Audio) do have surround. Whether or not this is actually supported by iTunes, I have no idea.

If the Digital to Analog Converter (DAC) in your receiver is better than the DAC in the Airport Express, a digital optical connection may provide better audio quality. See this test report in Stereophile magazine:
http://www.stereophile.com/accessoryreviews/505apple/

An optical connection also provides isolation from ground loops and other electrical noise that can effect the analog output of Airport Express.

There is one potential problem with using the Airport Express optical output. Most receivers and preamp processors require a certain amount of time to synchronize their DACs with an audio bitstream. Most digital audio components send a bitstream of digital silence whenever the component is turned on, so the receiver's DAC is synchronized before the audio program begins to play. Unlike most digital audio components, the Airport Express digital audio output is inactive until it receives an audio bitstream. This anomaly can cause a momentary loss of audio each time the bitstream is initiated.

Very good points. Something tells me that the DAC in Terry's (and also my) Denon is probably a lot better than the one in the AX. I'll probably get around to giving it a try when I have time to go out and buy a cable. I could probably find some other uses for the 1/8" to RCA cable I am using with it now anyway.

I have a Denon AVR3803 running through Paradigm Studio 40 speakers. I tried both the analog and digital output via AEX /Itunes. With good MP3s ( 192K or VBR/200ish), the digital won. In fact, it's close to my reference redbook CD player in sound quality . The D/A converter in the Denon along with the AL24 processing is quite a bit better than what the AEX has onboard. The RCA analog is closer to FM stereo quality. I realize these are subjective impressions, but I don't think anyone will be disappointed in investing the 40 bucks or so to run audio from an AEX into good D/A conversion.

Does this imply that it is possible to get actual surround (e.g. 5.1) with AirTunes as long as I connect my amplifier to the Airport Express with an optical cable? I'm currently using a 1/8" to RCA cable, which gives a somewhat distorted sound in the rear channels in 5.1 mode.