How do I connect an LG TV optical output to an RCA optical audio input to listen to TV on the surround Sound?

I've got your answer but you are probably not going to like it. The reason is that your receiver is too old to decode the more modern versions of optical TOSlink signals. Optical can hold two types of signals: PCM and bitstream. Bitstream is how older receivers (like yours) were able to decode surround sound (such as Dolby Digital and Dolby DTS if supported) and PCM only decoded in stereo. I'm not sure quite why, but I have a receiver in my bedroom that's just like yours (only a Yamaha) and I have the same problem. PCM has recently been the vehicle for most optical surround sound these days - DVD players, blu ray players, and especially switches and HDTVs that are compatible with HDMI cables. Fortunately many devices, such as these DVD/blu ray players, and home consoles (PS3/360) support bitstream as a form of surround as well. The bad news - you have to use HDMI for your video to your TV and optical from the device to your receiver (plus getting an optical multi-switch if you have more than 2 devices). On the PS3 or 360 you can customize that surround sound option via the console's audio settings - I've been able to get all forms of surround sound that way. On 360, though, you have to have the official microsoft cord that includes an optical port on the HDMI because the old HD cable (which is the only way to get an optical before HDMI) has the optical port and it is too big to have plugged in with HDMI. In short, you have to buy an expensive $50 cable and a $20-$30 adaptor to get HDMI and optical working on an Xbox. On PS3/blu ray/dvd players, it's much easier: plug HDMI into device and TV, plug optical into device and receiver - done. Be sure to update the settings in the device menu and then verify you are getting Dolby Digital, Pro-logic, and DTS depending on the DVD settings. Cable boxes can be a mixed bag - I eventually gave up and used the HDMI for both video and sound and used the TVs (horrible) speakers for audio until I got a more modern receiver. It sucks, I know, but that's the price for technology these days. I'm just thankful that they still support bitstream for the most part.