Here's an update from my side. I have a Denon AVR-1802 receiver with 2 optical inputs. The receiver does this thing were is auto detects analog vs. digital for the inputs that the user has assigned the optical inputs to. So, this made testing a little tricky, but was never the source of the issue. Before my original post I'd tested the ATV on both inputs (never worked), tested a PS3 on both inputs (worked on both), and tested 2 different optical cables on both devices and both inputs. And the only consistent issue was with the ATV.
Seeing some of the later posts, I tried the ATV reset via connecting it to my Mac. The reset was smooth, I hooked everything back up, logged the ATV onto my network and Apple ID, and it didn't work. Bummer, but then, I decided to give swapping cables another try. And to my surprise it worked!
It would seem the cable was bad, however I had tested this on my PS3. So, I connected the "bad" cable to my PS3 and audio comes through on the PS3. Confused, I just left the setup as is and figured that the ATV was more sensitive that the PS3. But then I started using the PS3 for a longer duration and realized that after sometime the audio on the PS3 started skipping, which I hadn't detected in my tests since I was just playing a sound bite to see if anything came through.
So, in summary, it seems that a combo of the reset and a different cable are what solved the issue for me.