I use both types of connection on my Denon AVR3300 and have never had a problem with either. If this connection is not working you will hear no sound at all or sound cutting in and out etc. It will not be a situation where one sounds better than the other. If both are working, they will sound the same.
Where I have the option, I would probably go with the electrical (Coax) conection since the cable will probably be cheeper.
As for the noise and ground loop issue, remember that one of the tennents of digital transmission is its noise immunity. Put another way, digital signals are significantly more tolerant of analog noise, ground loops etc. than an analog signal would be. Because of this, the digital coax connection is probably the most forgiving connection in your system. Therefore, Don't feel that you need to spend the big bucks for an expensive piece of interconnect cable. Just about any good quality cable can be used for this connection and will give good results.
