Thanks to everyone for the great advice. I managed to get my optical connection recording. I'm not 100% what change that I made worked, but in Creative Audio Console, I turned on Bit Accurate > Enable Bit Accurate Recording. I also made sure Sound Setting in Win Vista Control Panel had SPDIF as my default recording device.
I still don't get automatic file splits, but I found something even better: http://mp3splt.sourceforge.net/. mp3splt can query against CDDB, using their Cue files in order to split a file perfectly (assuming there's no added/removed space before/after tracks). Even better yet, it NAMES the files appropriately and sets up all the metadata for the new MP3s. It has scads of options, based on you preferences, so files can be named whatever you want, etc. A lifesaver for me, no doubt. I hope this helps someone else.