does the XB do optical sound out of the box
No. You'll need one of three things to do optical with the Xbox. You'll need Microsoft's Advanced A/V Pack (S-video/composite) or their High-Def A/V Pack (Component), both of which retail for $19.99. Alternately you can use Monster's Component cable plus their proprietary optical doohickey (it won't take a standard optical without an adapter between the component cables themselves and the optical cable). Prices on those are generally $59.99 and $19.99, respectively. Your best prices on Monster stuff are going to come from Gamestop (got my component ones for $39.99 there) and Blockbuster (got my optical adapter there for $7.99). Shop around, and if you know someone in retail electronics at Circuit City/Best Buy ask them about getting them for you through Monster's retail discount program (60% off retail price).