[Connected Car] MartyM76:
Hi, we are basically in the same situation. Sadly I think you are going to find it is rare for someone to have answers to any of this, as very few people are familiar with the systems/protocols we are trying to use and there is a lot of confusion or bad information out there.

I am currently using an Alpine PXA-H701 DSP/5.1 decoder and have experimented with various things trying to accomplish the same thing as you.

First, the Bluetooth receiver you mentioned is a LIE - that is false advertising. It doesn't even support APT-X, which my Sony Z Ultra phone and the Bose Bluetooth Receiver I recently installed do. Bluetooth simply cannot even support full-resolution stereo data, so it certainly cannot support 5.1 or lossless. Right now, the only wireless way to do that is (supposedly) Chromecast Audio or DLNA.

APT-X is the best sounding Bluetooth protocol currently offered, however it is not lossless - there is a penalty on frequency response, and I believe the upper frequencies are band-limited to around 16KHz if I read correctly somewhere. It sounds nice but still isn't CD quality. I can tell the difference vs. lossless when I tested my Chromecast.

Very much like you, I have used a Monoprice HDMI audio extractor and MHL cable successfully to pass through lossless bit-perfect audio including 5.1 (which is not lossless, but demonstrates passthrough ability, not downscaling or transcoding) via Kodi for Android. I would have liked to use MX Player but at the time they had removed AAC/5.1 audio decoding so there was no sound, but I now have the codex for it and will re-test.

Kodi can play music, videos, etc but the interface is not simple like VLC or MX Player.

Also, lossless FLAC files can be used wirelessly with the Chromecast Audio but you'll need a player that supports casting or BubbleUPnP, which now can transmit lossless FLAC to the Chromecast. However, it's a work-around for sending audio and when trying to play videos or YouTube; the lag is tremendous so it's not good for playing video on the device while casting audio. I currently do not have a media player that can cast so I used the BubbleUPnP module within Xposed Framework (had to root my phone) for music.

USB-DAC (w/ optical output) adapters would be ideal, too, but USB OTG in Android does not currently support charging while using an external USB-DAC/Optical adapter, so it will drain your battery down. So that's unfortunately not an option in current Android OS to the best of my knowledge.

To make matters worse, very few phones as you know support MHL/HDMI output, and even fewer APT-X. But to get real lossless via optical you can use any phone you want that has a hotspot feature if you use the Chromecast Audio and FLAC audio files, or WAV if they're lossless too. Otherwise we're stuck with phones/tablets that support MHL only since USB audio can't support charging.

Then another potential problem is that of discharging your phone's battery when using an MHL cable/adapter. I read here that when an MHL standard device is attached, the phone will charge. I haven't verified this.

So, from what I've found it comes down to this:

For WIRED lossless digital audio, will have to be MHL/HDMI, limited to very few phones/tablets with the feature. This assumes the device will be able to charge - so that's still an important question to answer. In this case video could also be support & synced pretty well to audio

For WIRELESS lossless digital audio, any Android device w/ hotspot ability can connect to a Chromecast Audio and BubbleUPnP will allow casting FLAC files from a media player like VLC or MX Player. You can also use Spotify and other supporting apps to cast digital audio to the Chromecast. Video will not be synced to audio, so that's out, unless you use Bluetooth for audio when playing videos on the device.

USB-out on Android is not currently the end-all solution until charging in host mode is supported

No lossless audio possible on Bluetooth (it's compressed by nature); any claims otherwise are false advertising

So, I'll have to try MHL w/ my HDMI extractor and some way to try to see if my Sony can charge while doing so. Otherwise, I'll have to use both Bluetooth (at the cost of reduced quality) for video files [due to sync issues] and cast to Chromecast Audio for lossless audio. I tested a tablet like the Nvidia Shield w/ separate HDMI out, and that's all I needed - the HDMI audio extractor only.

Your Samsung may need a better/different MHL cable, because I'm not familar with the S8 but I have seen that not all MHL cable work well as the OEM and also they're often not interchangeable.

Hope this helps!