What is the Best Way to hook up the Audio to play on the external spekers

Hello Experts.  I am a long time Experts-exchange member and love it.  This queestion concerns TV, Receivers and BluRay equipment (as opposed to IT), but I see where questions are being answered.

I have taken considerable length to describe my Home theater environment and hope you all can help.

Here goes:

I can hook up the HDMI video correctly and it displays in HD but I cannot get the Audio to play from the Sony Audio Video receiver to the external speaker  L R, C and Back (I can only get audio to come out the TV speakers).

I want to work with HDMI as much as possible.  I will first describe the current environment specifying HDMI and Optical/Digital/coaxial ports (IN/OUT) only.  I will not address Component,  S Video or Composite ports.

Here are the In/out HDMI and Digital/optical/coaxial ports for each device:

Sony BDSP300 BluRay DVD player):
     HDMI OUT (I currently have this hooked to the TV HDMI2 input and the picture is fine)
     Digital OUT Optical (PCM/DTS/Dolby Digital - don't know which, if any to use)
     Digital OUT Coaxial (PCM/DTS/Dolby Digital - don't know which, if any to use)

Scientific Atlanta Explorer 8300HD Cable STB
     HDMI OUT (I currently have this hooked to the Panasonic HDMI1 IN & the picture is fine)
     Optical Audio OUT (Not sure if this is better than Digital audio or HDMI if at all)
     Digital Audio OUT (not sure if this is better than Optical or HDMI if at all)

Sony STR-DG720 Multi Channel AV Receiver::
     HDMI IN SAT (I don't have Satellite so I assume this could be a cable box)
     HDMI IN DVD (don't plan to use this as I have BluRay)
     HDMI IN BD (BluRay in which I have)
      In the section labeled TV there are several IN type ports (very confusing labeling):
          Optical IN
          SAT IN Optical
          DVD in Coaxial
           
      Then there is another section called "Digital (assignable), and it has a HDMI lookalike port
       called DMPORT (DCSV   0.7a MAX), whatever this is

Panasonic TH-50PZ80U Plasma TV
      HDMI1 IN (I currently have the STB Output hooked to here & the picture is fine).
      HDMI2 IN (I currently have the BluRay DVD player output hooked here & he picture is fine)
      Digital Audio OUT
      Standard set of component, composite ports that I don't want to use

I also have a set of standard Speakers (Left, Right, Center, Backs (2) and I could get a Woofer)

Ok, that is the environment, here are the questions:

1.  What would be the best way to hook up the Cable STB, and the BluRay DVD player so that I have the HDMI picture (which I do) AND the best Audio coming out the external speakers (because the audio only comes out the TV speakers now)?

2  I heard it is best to hook the Video directly to the TV and the Audio to the AV receiver (which then go to the speakers).  Is this correct (when I have HDMI ports on all components)?

3.  Do all HDMI Cables handle up to 1080P.  I have a set of HDMI cables (Believe both are NEXXTECH).  One is model Number NXU U4HDMI $55.99 and the other is NXX N3HDMI $41.10.  I have a bad feeling about the lessor expensive one (ie., supporting 1080P).  But, that being said, if it only supported up to 1080I which is all the cable stations transmit anyway, does it matter?  Or should I take them back and get the $55 dollar HDMI Cable?  The sales guy (at CC) said HDMI cables are 'iffy" at best and the only way to be sure is to get the $99 Monster HDMI cables.  Is there any truth to that, or was he selling me?

4.  I have been seeing the Audio outputs as Coaxial or Optical.  Is there a better format?  What is the pecking order of the audio output options?  HDMI?  Optical?  Coaxial? and forget RCA composite.
   
So, there it is.  I hope I have detailed all the necessary information for you to provide me with good direction.  This might be a good learner guide for others in the same boat.

Thanks in advance for your troubles.

Robert Wagner