I’m confused. There is one input on the Arc, yet you say you have it both as connected to the HDMI ARC output on your TV, and the optical output?

Atmos can not be carried over the bandwidth available on optical. Also, optical is a one way transmission medium, so the Arc is unable to send a message back to the TV set to tell it what are acceptable formats.

Make sure your Arc is connected properly to the TV’s ARC port, using the Sonos provided HDMI cable. Then watch something that has an Atmos soundtrack. The Arc can not change a normal signal to an Atmos signal, the source must be sent to the Arc as Atmos. 
 

What source are you watching? 
 

@Airgetlam thank you for your reply,
No what i meant was is that i tried both hdmi arc and optical.
 

However, i must have changed something for the better because as of now my sonos app is showing that the audio in is Dolby Atmos (DD)

Note, Dolby Digital is not the same thing as Dolby Atmos, but if you’re getting DD, then when appropriate, you should be getting Atmos. 

I an have this issue.  I tried playing something using Apple TV and PlayStation but I’m getting Dolby 5.2 and Dolby Atmos.

@RoxZoe Maybe it is better that people answer in the topic you opened especially for this: