S/PDIF (
http://en.wikipedia.org/wiki/S/PDIF ) has been around for a decade and was designed to digitally carry:
1) Compressed Digital Audio such as 5.1 Dolby Digital or DTS Surround Sound as found on a DVD (these are Lossy formats)
2) Uncompressed Digital Audio such as 2.0 PCM from a CD player (this is a Lossless "High Def" format, just 2 Channel)
As a result of it's design it is unable to support the following High Def formats:
1) Compressed Digital Audio such as DD+ (lossy), TrueHD (lossless) or DTS-HD MA (lossless) has found on many Blu-ray discs
2) Uncompressed Digital Audio such as 5.1 PCM (lossless) also found on some Blu-ray discs (or.... Upmixing in MC 2ch PCM from a CD to say 5.1ch in the DSP studio)
Changing from S/PDIF is only worth considering if you want to playback either of the above types of Audio. If you do what to do this there are two main options:
1) HDMI: You will need to change your Kenwood to a newer model that has HDMI and these days ones that support decoding TrueHD and DTS-HD (look for the logos such as on this similar Kenwood model
http://www.kenwood.eu/products/home/separates/avcc/RV-7000/). I understand that you have HDMI on your TV so we are all good there. You don't mention what type of Graphics Card you have but you may need to upgrade to a minimum of something like the ATI5450.
2) Analoge: Matt loves this solution (I'm not a fan)....but on the back of your PC you will probably have a bunch of 3.5mm Analoge outputs. You could use 3.5mm to RCA cable to connect these outputs to the "6-Channel Input" on the Kenwood. You will then need to set your PC to output to all audio to "5.1 Speakers" and away you go. Your PC will then act like a preamp. The downside is that at present there are no filters that can decode all of the DTS-HD MA info (just the core), so this will currently add TrueHD, DD+, and 5.1PCM output at full resolution and bitdebth. I'll let others chip in on this one ... Esp Matt!