drummerguy:with no disc in, go into your power DVD settings and select spdif. It should come through your HDMI as such. I messed around with this forever with a disc in the drive while I was trying to change the powerdvd settings. It wouldn't work until I took the disc out, changed the setting, then put the disc in.
Interesting... I was having the same issue with mine, though I just had the free trial version and thought it had something to do with that. I was going to buy it until I discovered the audio was doing that. I might give it another try since I prefer that player to windows one.