I have a Videologic DigiTheatre Decoder, which works great.

It has both Optical and Coax digital inputs, plus analog inputs for Dolby Surround.
Dolby Digital only though, no DTS (if you care about such things)

I paid about 100ukp for it. I don't know if it is still for sale anywhere (their site shows it as unavailable), but you might be able to find one second hand from someone upgrading.

Click for Details