Please listen to this: http://nate.quandra.org/wtf.wav
It's me moving through the PS3 main menu and then playing part of a Bluray. You can hear that the clicking menu interface sound effect "hangs on" afterward, producing something like a fixed pitch tone (the frequency changes after I click through the menu again). Then, when playing the Bluray, there is constant, severe noise, sounding almost like white noise.
The path is:
PS3 optical audio (toslink) -> analog converter (rca) -> playback
I've already RMA'd the converter once, so unless I got two bad converters ...
Already tried with a different toslink cable - identical result.
In my own research I found that the only form of copy protection afforded by toslink shouldn't be causing corruption like this unless this particular converter box is somehow wired to corrupt the signal if it encounters the copy protection bit. I can't imagine how that could be the case, especially considering googling doesn't turn up anything of the sort, but who knows! Unfortunately I don't have any other toslink sources to try with this converter at the moment.
Only other thing I could think of to try was changing the optical out to "linear PCM" (as opposed to "bitstream") in the PS3 audio settings but this again produced identical output.