How can I use digital output instead of analog output for USB headset on 14.04?

Solution 1:

As suggested in How can I enable digital output on a FiiO E7 without ending session?, to enable digital output you need to kill PulseAudio:

pulseaudio -k

Then you should be able to see a device like the FiiO USB Audio Class 2.0 DAC Digital Stereo (IEC958), with PulseAudio Mixer reporting something like a Digital Output (S/PDIF) port.

Solution 2:

The issue seems to be the same for any USB sound card (DAC) with both "Analogue Output" and "Digital Output" available. (How can I enable digital output on a FiiO E7 without ending session?)

I can confirm that a restart is required to get the "Digital Output" available in the sound preferences (and thus enable volume control and better quality).