captainsolo said:
If you start with a player that has the digital out-does it still need a demodulator to get the 5.1?
Yes.
"Digital out" on a laserdisc players outputs the disc's digital track, which is 2 channel 44.1kHz PCM. You can capture this digitally without a demodulator - but it won't be 5.1.
AC3 audio is stored in modulated form on the LD analogue track, so on a LD player the AC3 out is a different connection to the digital out.