You'll have to check your motherboard manual. I did a search online but couldn't find a detailed enough picture to pick out where the pins are. Put 1 end of the S/PDIF cable on these, and the other into the header pins on the GTX260. Then the audio will pass through your HDMI cable directly to the destination with no need for secondary cables.
You got me looking into the manuals for my own video card and motherboard. Sure enough, for HDMI output with audio there is a S/PDIF out connection on my motherboard and a similar "in" connection on my graphics card (ASUS Geforce 9600GT). According to the graphocs card manual this should give me HDMI with audio when using the supplied adapter. Unfortunately I am not going to haul my PC set up from my den to my 50" plasma TV to find out if it works! Although the thought of playing AH on the big screen is really tempting!
It will be interesting to find out what "instructions" xNOVAx is using. TV, Graphics card or somthing else!
Certainly I agree if you can get the Audio into your HDMI output, it should work with just the external HDMI cable connection - I'm just not that sure if the standards used are universal now. Has anyone actually done this?