I personally CAN CONFIRM that X Box One X, set with HDMI to TV and Optical to BOSE SOLO 5 (same Dolby Digital only support as Sonos) CAN TRANSCODE DTS TO DD 5.1 in The fly.
I tried
Audio option HDMI Bitstream
Bitstream DD 5.1
Deadpool Blu ray that has only DTS OST
X Box trough HDMI to TV
TV via optical to soundbar
TV LG OLED B6V that has 5.1 passtrough
All OK.
As a counter proof I set Bitstream to DTS and resulting audio was mute.
This is X Box one X but S is The same.
Hope this can help
X Box one X DTS to Dolby
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