Yeah, that's software audio, which is all you're likely to ever get in Linux. Nvidia is not currently providing a driver that does ANYTHING in hardware, aside from providing a basic audio output (WAV, 16bit, 44.1 or 48KHz, non-accelerated).
Nvidia CAN write a driver that does tons better. Allowing digital output would be a big improvement that wouldn't be hard to do, but NV has no interest at the moment. They need to know we care! Write them and beg nicely for more Linux audio support! They'll probably reply that their Dolby Digital license doesn't apply, but that's BS, and there's a LOT they can do without DD output! Hardware 3D sound through OpenAL would be nice....