My mate had a similar issue with a QED optical cable from his SKY HD box to his Denon amp. The cable fitted into the slot but didnt seat well enough for the optical output to be read. after an hour of being baffled trying amp setting etc I decided despite the red light being visible the cable was the problem so we swapped it for a £2 one and it worked fine.
Paul
Onkyo 875, Monitor Audio RX6 GW,Monitor audio RX centre GW,Monitor Audio BFX rears, REL QUAKE,Arcam CD73t CD ,Russ Andrews Yello mains cabling & PBJ interconnects,Sterling Black Mamba speaker cable.