There are a lot of things about your experience that are very different than mine, maybe because I use the official drivers and not the Daniel K drivers (except on my Dell OEM XremeGamer cards).
I will say that there are rare occasions when I will get a sound flickering issue. It's very rare, maybe a handful of times per year at most. I usually leave my card in Game mode. To resolve it I quickly switch it to Entertainment mode, and then back to Game mode. This seems to reset the SPDIF interface. Maybe this could help in your case.
Just keep in mind that using the SPDIF output directly will bypass all processing on the card. It's useful if you want to be able to do things like pass a Dolby Digital or DTS signal to a receiver, but other than that you should always use "Speakers" and not the SPDIF output directly.
The FlexiJack should not be related to the digital output in any way on the X-Fi Titanium. The X-Fi Titanium has a dedicated Optical digital output. Other X-Fi cards use the FlexiJack option to enable coax digital via one of the headphone jacks, but that doesn't apply to the X-Fi Titanium. Are you seeing something different here?
View attachment 355838
Another case where your settings seem to diverge from mine.
View attachment 355839
It's okay for the Sampling Rate Settings to not be adjustable here, because they should not be different than in Windows Settings, and you can set it there:
View attachment 355840
In this configuration, my DAC recognizes 24/96 from the X-Fi just fine. I can play 24/96 digital files on the computer just fine.
Why are you trying to set your soundcard to 48kHz but leave it at 96kHz in the Windows Sound Settings? Even if you have the option to adjust it, there is no reason for these settings to be different. It's okay to leave your card at 96kHz, and it should be able to handle any resampling that might be needed to play other files.