Sound Output on iMac

I have an iMac (late 2009) and I am trying to output my sound through my surround sound speakers. I have my iMac connected to my Surround Sound System's Reciever via a Digital Optical Cable (toslink), which is plugged in the headphone (output) of my iMac and the Optical input on my Reciever.

The problem I'm having is that when I go into Audio/MIDI Setup and select the "Built-in Output" for my sound source I can only ouput 2 channels. Not 8. What am I doing wrong?

My Surround System works when I use the MiniDisplay Port to output the sound but I can't seem to get the Optical Output to output surround sound :/

Note: The reason why I'm not just using the MiniDisplay Port is because I currently have an external monitor hooked up.