Optical digital out - volume control?

I use the optical out, input into my Sony reciever. It behaves just as I would expect. It's at a fixed level, just like any other line out connection.

Yep, it's fixed line output. Hopefully you hav some sort of remote control.

If not you can get a ATI Remote Wonder and program that for iTunes.

Another method I guess would be to use something like QuickKeys or search for a hack on MacUpdate or Versiontracker.com that will assign certain keys to adjust iTunes sound.

iTunes Soundcheck doesn't do as good as a job as it should, also the volume adjustment can't be made to go across all the files in some sort of way as to be pernament on the files so when a mixed cd is burned one doesn't get all these loud songs and quiet ones.

However converting iTunes songs to MP3 and using a sound leveling software seems to work. (search Macupdate, I don't remember what it is)

You can adjust the alert sound volume separately in the Sound preference panel. Not useful for adjusting volume on the fly but once you get it to the right level the alert sounds won't be excessively loud.

Only System alert sounds will be affected by the slider in the Sound preference pane. I hadn't realized that the alert sound you were referring to was from an application.

When you use the optical output there is no way to control the overall volume from the keyboard (other than mute). You may want to consider using the audio line out port instead.