It's super compressed but it's the same super compression that is on any DVD so for any surround audio source a consumer would have it was perfect.

The only people who would lose out on using TOSLINK was someone listening to a surround SACD (not exactly common).

It was never updated for the higher bitrates on Blu-ray, so that's when it fell out of favor.

Super compressed compared to what? Bluetooth?

Compared to pretty much any other output you'd have on an av receiver 15/20ish years ago (so hdmi, XLR, or some other standard analogue like rca or speaker wire). Possibly similar to the compression level of blutooth, don't have access to any systems that'd be easy to compare against these days for toslink.

XLR is one cable per two channels. You could conceivably run one toslink per two channels and get functionally the same as XLR (minus phantom power)

Balanced XLR is three conductors per signal:

- Pin 1: Ground

- Pin 2: Signal in Phase

- Pin 3: Signal flipped

Two channels over XLR are done in two ways:

- digital using the AES standard and 110 Ohm cables

- analog using two balanced lines and a XLR-5 connector, although this is not an offical standard to avoid confusion with DMX

I def could see doing that but don't think I've ever seen a system with multiple toslink for additional channels like I've seen done for XLR.