@
Jambumali - Neither did I know about the problem till I bought it. It is a very common & age old problem with the WD players but oddly enough you don't come to know about the issue until you specifically look for info on it.
Is the solution Cumbersome? Yes because the problem should not have existed in the first place.
Anyways here is a link to the thread where the solution was discussed -
http://www.techenclave.com/applications/need-5-1-aac-5-a-128476/
I think the firmware that I had updated to in Jan resulted in no Audio for MP4 files with 5.1 AAC audio. A later firmware and the current firmwares play the audio in Stereo mode. This atleast saves me some trouble. For most videos which are not action flicks I don't bother.
Simple steps to get those files to work are -
1. If you are going to use Optical Out see my post 11 in the mentioned thread for required settings on the player.
2. Conversion of Audio Stream from 5.1 AAC to 5.1 AC3 -
- The steps mentioned in the first post in the mentioned thread.
or
- A> Perform Step 1, skip Step 2 and Perform Step 3.
- B> Use PopCorn MKV AudioConverter.
- C> Select Tab 1 - MKV Tools set the Source File to the obtained MKV file from Step A and the Target file to whereever you want to.
- D> Then Select AAC Tab. Set the settings as seen in the Picture. ->

or
3. I read somewhere about another solution which is to use the computer as Media Server for it and for Audio set the codec. I tried it to some extent. Windows 7 with files added to media library of Windows Media Player with network Sharing options enabled. I found a few issues -
1 - I am using Wifi so had stuttering issues with files having high bitrates.
2 - MKV files were not playing.
3. Could not find option to set output audio codec.
4. Started watching the video on PC and forgot about the player.
Though have no fear - I am planning to try - 'PS3 Media Server 1.70.0' for the PS3. Will try and see if it is detected by WD Live player as well. Will keep you posted.
Mind you I am speaking with this player in mind -
WD TV Live
Recommendation - If you plan to convert use the first method because all 3 tools are simple to use. PopCorn MKV AudioConverter needs a number of plugins that have to be downloaded separately to work but once it is set you are good to go. The conversions don't take a lot of time but there is no way to perform batch conversions.
Hope this helps.