It really depends on the soundcard and what you want to do.
I'm assuming I have a receiver with 6 speakers hooked up to the soundcard.
For Digital: I think only the higher end Nforce and Nforce2 motherboards onboard soundcard has the ability to ENCODE 5.1 Dobly Digital on the fly. All other soundcards (that I know of) has to downgrade to 2 channels to send sound digitally, so you lose some positional ability for sound in games. On DVD soundtracks, most soundcards can simply send the sound info (whether 5.1 DD or DTS) directly to the receiver through the digital link, so the receiver does the decoding.
For Analog: You don't lose positional ability on the majority of soundcards in games. But you have the 6-wire mess instead of the 1-wire mess to deal with, and you have more of a chance of interference occuring on an analog link. In most cases though, the interference is very minor, if there is any.
So, if I had any of the NForce boards (or a soundcard) that can do 5.1 encoding, I would go with all digital. Otherwise the following is what I would do:
For games: Analog. Positional sound is so freaking cool. You lose that in the conversion to Pro Logic II then back again.
For music: slight leaning towards Digital. Only reason for this is to reduce the chance of interference. Almost all (modern) music is based on 2 channel Pro Logic II. You can get 5.1 music, and those you would have to use digital to get the full effect.
For movies: Digital. I have my systems setup to directly pass the DD or DTS signal directly to the Receiver. DVD software can decode this signal to send over a 6-wire analog system, but, again the interference possibility creeps in, and also, why make the computer do the work when the receiver is perfectly happy to do it for me...
I hope that Nvidia can make a separate daughter board (read: PCI card) version of their onboard sound system. That would really simplify how I set my system up...