First we needed to add the user to the audio group:
sudo usermod -a -G audio user
Then you will need alsamixer to be sure all three IEC958 outputs are unmuted.
Then you will need to be sure Myth is set for hdmi in the settings.
We also found http://xbmc.org/forum/showthread.php?t=59877 for further info on multi-channel hdmi sound from the Nvidia ION.
We found the output from aplay -l to be useful.
aplay -L
Upgrade for ALSA under Ubuntu 9.10 can be found at http://monespaceperso.org/blog-en/2009/12/17/upgrade-alsa-1-0-22-on-ubuntu-karmic-koala-9-10/.