Lower audio quality? Nope. Toslink sends the actual bits that make up you audio digitally over the cable. If the receiving device does a shit job at converting the signal to analog, this is barely the fault of the standard.
The codec they transmitted over the wire (regardless of the wire media) was crappy, not the wire itself, but in this case those imply the same thing as as far as I'm aware there was only the one format that it'd transmit over that connector.
I've used spdif in coax and fiber (toslink) to transport audio from tv (atsc1) and dvd where you're just bitstreaming the data from the antenna or the disc. It's also fine for 2-channel PCM.
Dolbly Digital (ac-3), dts, and 2-channel PCM are fine for what they are. More channels in PCM would be nicer, as would other newer higher bandwidth, lossless codecs, but as a unidirectional signal, it's hard to add support for more stuff. It's not terrible for a standard from 1985 to not support full bitrate audio on blu-ray.
okay, looking closer at the wiki (it's been forever since I actually tried it), for stereo it's full bandwidth, it's when it's surround sound it's super compressed.
Compared to pretty much any other output you'd have on an av receiver 15/20ish years ago (so hdmi, XLR, or some other standard analogue like rca or speaker wire). Possibly similar to the compression level of blutooth, don't have access to any systems that'd be easy to compare against these days for toslink.
