Its really hard to tell in which situation the WD behaves …
I figured out now that the "Factory Reset " Audio Fakefix only works with Firmware 1.2x and 1.4x .
With 1.3x it is not working at all.
And you MUST do a Hardware side Reset using a needle or stick first time!
After that you can fix the Audio distortions doing aFactory Reset over the Menue.
But remember same time you power off or standby distortions are back.
And of course you need to reconfigure the whole WD live again then including network setups / Display and so on.
After some more h of testing and getting really mad i can say that all Videos containing LPCM do have the same
Distortions in Audio over HDMI then the Audioplayer.
Using 1.2x Firmware as ONLY Solution even being able of getting rid of this WD Live Firmwaredesaster is no Option at all. Once i do playback a Header compressed MKV the WD is dead and refuses to playback anything anymore and must be reactivated with 1.4 Firmware and then downgraded again to 1.3 since 1.3 ist the only solution for Header compressed MKV.
I didnt even know my MKV had header compession… No joke…
Whatever id need 1.3 but with1.3 Firmware all i can use is dirstorted Audio in Videos.
1.4 is not usable since MKV Playback is overall damaged and stutterly and even booting the WD is slow as **bleep**.
Edit 02.03.2011
Using wdtvlive_1_02_14.zip also works HW resetting on left side with a stick
WDTV_Live_1_01_11.zip did not work using a HW Reset.
If someone can tell me a magic spell to save my resetted WD Config now so that i can keep the Audio good it would be much appreciated.
Honestly… what did you change on HDMI Audio in Firmwares1.2x and 1.4x that a Reset temporary works with distorted HDMI Audio? Someone removed this in 1.3x and brought it back in 1.4x.
If you could just save this HWReset-Setting it would be awesome.
If i can help u using a Debug Firmware to install it on my unit to log Data help fixing then here i am.

BTW i do have a LG LE 5300 LED TV ( European ) and a Samsung LE32C530 LCD ( European )
Toslink Optical Audio Output with the WD Live is also working flawless but all my Inputs at my AV Receivers are full 