Ok I got it figured, again I will post for future reference to help others with this problem. I swapped video cards and left all dip switches alone, then the audio worked through the nighthawk PC. Like I originally thought, it is a video card thing. The only way to get 1080p HD is with a 740GT card and also audio through HDMI. the 9500GT video card and 640GT both will only give you only 720p HD and the audio will be through the PC and I/O board only the HDMI will be for video only.
It is impossible to have audio playing through the TV HDMI and the cabinet speakers both together. I prefer the cabinet speakers for sound so I had to run a Y cable from the TV headphone jack to the I/O board In order to get 1080p and audio through the cabinet speakers.
Not a big deal, just thought I would pass on the info.