I suppose you would like to record from your MD to the PC, as you described the IO's of your MD you said that it has an optical out, right?
Do you have a Live! alone or with it's Live!Drive? Cause if you have the last one there is already an optical SPDIF IN to connect the MD
As far as I know the Live! has five holes which are:
1. analog & digital out (front spkr)
2. line in (analog too)
3. Mic in
4. line out (analog too)
5. Rear spkr out
Plus a firewire (optional)
The only digital in, is inside the card mentioned as CD SPDIF in and can be used to connect a CD/DVD rom.
I suppose what you need some kind of converter from optical to coaxial and I don't know if there is any.
Anyway, I have recorded with both ways from my MD (digital & analog) and the sound quality is perfect in both cases.