Yes I got it!!! My problem was the "Pure direct" selector. I've never used my Denon 2900 in digital before so I had this pure direct to mode 2 so that the display is shutoff, supposedly improving analog sound quality. However, when selected, it seems like digital output is also shutoff! So I turned the pure direct off and voila, pure sound coming out the digital connection.
This is a blessing, sound quality is definitely better using the Paradisea then it is using analog out of the 2900.

Now I can enjoy not so bad sound quality from all my concert DVDs, not as nice as when I listen to redbook with my modded RWA Squeezebox as transport but hey at least better then it was, I'm a happy camper.

Thanks.