Just a clarification:
The red light is not an 'extra convenience' feature that apple put in to show that speakers aren't working. The red light actually
is the optical signal itself, ie, it's the light of the optical signal which engages when the port switches to optical mode. It's the same on any device with an optical output, look on the back of a DVD player or other device and you'll see that when it is sending signal, red light comes out. So, when the red light stays on, on a Macbook or Macbook Pro, what it means is that the physical switch inside the port (designed to detect the presence of an inserted optical cable) has gotten stuck in 'optical' mode. So then, because OSX thinks that it is sending all audio out of its digital port, it automatically mutes the speakers and disengages the volume control (because with the optical out on macs, they only output an optical audio signal at full volume).
But still, despite the fact that it's not a special feature Apple added, it still is an easy way to see that your port has gotten jammed.
FWIW, I have been plugging headphones and optical output cables regularly to my late 2006 MBP since I got it, and (touch wood) have never had a problem. But because I already knew about the fact that the port has a detector to switch modes, and because I knew that this could become damaged, I've been
very careful and gentle every time I connect and disconnect something. I can hardly imagine Apple putting a warning in the manual to say that there is a delicate sensor in that port so to be careful.. but I do believe that if more people were aware of this, they'd take extra care in using it and possibly avoid it breaking in the first place.