After putting all my equipment into my cabinet and connecting it to my receiver, I realized I was short 1x digital optical input :S whoops, Xbox with no surround is like a toilet with no toilet paper.
Optical/Coaxial work off the same signals(digital) the only difference is Optical has an adapter at each end which outputs the light.
So here's my modification guide:
Equipment needed:
- small flathead screwdriver
- jigsaw blade or hacksaw blade
- hot glue or araldite(Sp?)
- 30 minutes of free time
- 5cm of electrical wire, the thinner the better
- AV female plug
First off, cut the old component/AV leads off :) we won't be needing these

Measure up where the HDMI touches the bottom of the Adapter:

Cut it out with a jigsaw blade or mini hacksaw and i should look like this:

Make sure the HDMI cable and adapter fit into the XBox now and if you have optical digital, that's all that's needed. Skip to the last few steps below to paint and glue the adapter back together.
Otherwise, pry open the adapter, remove the tape from one side and push a screw driver in between, it'll snap open nicely:

Now open the metal casing(2 clips either side and you'll see the old component AV wires, cut these off and remove the metal tab which used to hold it in:

Desolder the 4 points connecting the circuit board to the metal:

Flip the circuit board over and wire two wires to the inner and outer left of the mini toslink connector.
The Centre wire will be the postive and outer the negative :)

Reinstall the wiring/circuit back into the metal casing, use electrical or double sided tape so it doesn't short out on the casing:

Now take your RCA connector(i found mine in an old amdex wallplate for my subwoofer(that i wasn't using) and wire, the positive wire to the inner and the negative to the outer connector of the RCA jack(Sorry i should've taken more photos of this part)

Now, once you've got this far, go test it with the receiver and some coaxial cable to make sure it works.
If you hear surround sound and get something like this(The dolby signs), then you've wired it successfully, woohoo, you can start reassembly :) if not, go back a few steps and check your wiring and that you haven't managed to bridge the positive and negative

Next, mount the new Coaxial/RCA connector where the old wiring was coming out, it's a near perfect fit, put some glue behind it so it sticks(hot glue is easier but messy, due to it's fast setting time)

Now, retest in your reciever, to make sure it still works(hopefully you didn't bump anywires
Now is an excellent time to sand the bottom of the AV connector too(if you can be bothered) and glue it, so when it comes to painting you'll have a smooth surface which fits flush with your HDMI :)
I gave mine a couple of coats of matt black, so it blended in:

Test fit it back in the Xbox, mine fits nicely, the HDMI and adapter are actually quite straight, it's just an optical illusion

Then grab a beer, a controller and turn on the xbox:

Woohoo it comes on.
You've just saved yourself:
$59.95 on buying an Xbox Optical adapter/HDMI kit
+ $40 on an optical to coaxial cable converter :)
All for 30 minutes of your time + most of the parts you have lying around at home anyway.
And while it may not look like much, it'll be covered most of the time and will save you having to have a hideous adapter(I like all my home theatre stuff to be hidden and not stick out)