This is straight off of Creative's website:
How do I experience Dolby Digital surround on Sound Blaster Live!?
Dolby Digital is a separate functionality from Sound Blaster. Although Sound Blaster does not perform AC-3 decoding, you can still enjoy surround sound on your multiple speaker setup using the CMSS Movie Mode. CMSS uses binaural synthesis to create surround sound by cross-talk cancellation (using HRTF implementation). Since surround formats such as Dolby Digital and Dolby ProLogic content have binaural characteristics, CMSS is able to achieve the spatial effect when playing material that is encoded in these formats. If you are playing software DVD that has Dolby Digital content, select the CMSS Movie mode feature in the speaker applet (AudioHQ). This allows you to experience surround sound on your 4 speaker setup.
If you are using DVD Encore, you should connect the Encore to an AC-3 decoder to experience full surround. If you do not have a consumer AC-3 decoder/receiver, you can purchase the affordable DeskTop Theater 5.1 which is available from Creative. If you do not wish to invest in an AC-3 decoder, you can still experience surround on your existing 4 speaker setup. Choose the CMSS Movie mode feature in the speaker applet (AudioHQ) for a very cost effective surround solution that allows you to hear your movie on four speakers.
Note, that no where does it mention you can route the Live directly to a Dolby Digital decoder. They only mention the Encore being able to do it.
I'm not referring to the Live Drive AMB. A couple months after the original Live was released, Creative offered a backpane that looked just like the one that came with the original full Live! that had TOS in/out and an addition SDIF in/out. This card plugged into either the Value or daisy chained through the breakout card that came with the full live.
I thought they had discontinued selling it, but I found it here:
http://www.soundblaster.com/accessories/optical-io/
One additional edit. The LiveDrive I which comes with the US version of the Platinum does not include TOS connectors. Only the European version which comes bundles with LiveDrive II includes the TOS connectors. Creative Labs "graciously" allows North American users to upgrade to the Live Drive II for $130, after you mail back your Live Drive I. What a rip off.