I have the same issue. I tried all the combinations - no luck.
Also, I am not not able to update the Audio Output Device which is greyed out.
http://kodi.wiki/view/Settings/System#Audio_output
My previous posting:
I am new to KODI - XBMC etc. I recently bought an Amazon Fire TV and downloaded XBMC 13.4 Gotham. I use HDMI to connect to an Onkyo AVR which connects to a projector.
Initially, when the input audio source was AC3 5.1 or AAC - it was converted to Dolby and my AVR was playing correctly. For the DTS sound source, no issues as well. I was able to stream music from my Samsung device through XBMC localhost through the AFTV and it was playing the music as Dolby 5.1 through my Onkyo Receiver with great sound quality.
I had some video issues recently and was advised to upgrade from XBMC 13.4 to Kodi 14.2 which I did. It took care of the Video issues but introduced an Audio Conversion issue, If the input audio source is AC3 or DTS, it works fine. But the AAC audio sources are not getting converted to Dolby and just played as 2 channel stereo. I tried all the settings like Enabling Pass through, Enable Dolby Digital Transcoding, DTS capable receiver . tried all permutations and combinations. Nothing works.
What am I missing? Anyone had similar issue and fixed it? Please help.