Still, I cant seem to get the LEDs very far below the clipping zone.
I also dont understand why optical out to optical in would introduce "clipping". I thought power amplifiers "clipped", not source devices?
Many modern pop CD's are recorded at -3 to -6 db from maximum. [Read about CD Loudness Wars or got to Bob Katz digi domain for an explanation why engineers do this]
Therefore you will often be close to clipping...try reducing the OVERALL GAIN so that signal levels in the digital software are well below clipping. There is NO loss of signal by staying well clear of clipping. You will not be underutilizing your DAC. You have a 24 bit DAC - this is way more dynamic range than you need or your speakers are capable of....just turn down the gain there will be abolutely NO detrimental affect on the signal!
Note: Make sure the Max switch is in the correct position for analog signals.