Odd that HDMI 1.2 wouldn't support DD5.1, but if not, you're right that sucks. Especially since every device on the market right now (aside from ps3) is at or below this standard.
For some reason though I think this report is false seeing as though many recievers on the market currently support this version of hdmi and I doubt they are forcing optical use to gain DD5.1 support ... but I could be wrong ...
I don't think it has anything to do with HDMI. It looks like MS is not supporting LPCM 5.1 (not DD) via HDMI. LPCM is one of the main benifits of HDMI and the PS3, which supports it for both games and movies. Most new recievers, even <$500 supports LPCM via HDMI now.
I plan on a getting a new HDMI switching reciever in may, my buddy already has one