The problem many of you are having is most likely due to the fact that Windows 7 doesn't support multiple outputs simultaneously (apparently Vista is the same way). You have to choose one output: hdmi, analog or spdif and that is all that will
output. You can't run spdif to your receiver or tv and use headphones to listen to analog at the same time. I installed the latest Realtek drivers for 7 and it doesn't help. The problem is inherent in 7 which is a complete deal breaker for me. I'll stick
to XP which does all I need it to and lets me configure the sound output to my needs without having to wade through menus and WMC setup to make a change every time I use a different device.
This sounds to me more like a limitation of your device/drivers, rather than Windows. Windows 7, as far as I can tell, works in a similar way to Windows XP: You pick a default device, and by default, all sounds get routed through it. If you have a program
that can address a specific device (such as Winamp, when using DirectSound output), you can output to any device you want without changing the default. In fact, I have done this on my Windows 7 laptop... I connected an outboard audio adapter (Presonus Firebox),
which has three stereo outputs; I set one to be the default, and set Winamp to use another. I was able to output sound from both, simultaneously.
As for whether your audio device will output sound from both analog out and S/PDIF, it sounds like that's a limitation of your device or your device driver, and not so much Windows 7. Try a Sound Blaster, or a studio-grade product such as M-Audio Audiophile,
Presonus Firebox, Lynx, etc.
Hope this helps!