I had the exact same issue the initial poster had:
my DVD player has 5.1 out, I have an surround processor with 5.1 in, but there is no DD decoder in it.
I had two options: replace my dolby surround processor and my amplifier (both good quality units) with a receiver which does DD. Price tag (for something with similar quality) at least $600
The other option: buy on ebay a used DD decoder - which would output a 5.1 signal for my dolby processor (which of course does not do any processing on a 5.1 signal).
I got a Yamaha DPP2 unit ( but there are many similar units out there from Sony, Pioneer, Marantz and others ) for $100, shipped. And the best part: it comes with 1 year warranty too!
So problem solved, at a reasonable price... ( spending $600 just to get Xbox sound in 5.1 would have been way to much. $100 is still much, but more reasonable...)
Miklos