It doesn't work because the digimod taps the digital output of the ADC directly and jumps it over to the sample rate converter (which is connected to the s/pdif outputs).
If a signal doesn't cross the ADC, it doesn't hit the output. When you give the UA-5 a digital signal, it does not hit the ADC. The confusing part is that you can monitor the song from the headphone jack of the UA-5 - that's because you're monitoring from a separate DAC (in fact you are always monitoring A>D>A on the UA-5).
As far as recording goes, the digi-mod does not affect the ability to use a laptop thru USB. It does affect playback thru USB - you can't do it on a digimod. That is, you will not get any kind of output on the UA-5 when you play a sound file on a computer. This connection is severed as part of the digi-mod.
I believe that on a stock UA-5, you can use it as a format/sample rate converter, but it needs to be hooked up to a computer. It will not be bit accurate as the UA-5 works at 24/96 internally.