Long story short,
uninstall Pulse. I loosely followed
this guide.
If you're interested in the whole store, read on.
I worked at getting audio working smoothly under Ubuntu 10.04 Lucid Lynx for about three to four hours this morning. I started at the
wiki here, but that simply did not work for me (I only have two audio devices, the analog and the digital, and neither worked).
I then browsed through a few of these threads and found a few recommendations for disabling Digital Audio under Pulse I did that and I had pretty much flawless playback of streaming digital audio, but the analog was a no go.
I tried working through it, but kept getting stuck with either analog and no streaming digital or streaming digital but no analog.
I was at the same time testing audio under Gnome Mplayer which was more forgiving. I kept coming the the conclusion that Pulse was what was getting in my way, as anytime I could get a program to get around pulse I was golden.
I don't hate pulse, so I was hesitant to revamp the audio setup from the standard, but after hitting my head against all other paths (all that was left was installing
OSSv4) I decided to purge Pulse and install the xfce4 mixer (since the gnome mixer is no longer in the main repositories).
I rebooted, used the mixer to make sure all the necessary settings were right then set XBMC to use iec958 (both standard audio and pass-through), tested and both analog and streaming digital was working.
I'm not sure about menu sounds, but that's a non issue for me. I also imagine this might be done a bit more elegantly (by installing Esound maybe) but this system is really only going to be running XBMC so this is where I'm currently leaving it. Though I may test OSSv4 if I feel like risking it.
I hope this saves someone four hours of their life!