That's what I have been doing, but I thought I would get better sound if it went through an AV. Am I right in thinking the TV prcoesses the sound if the HDD is plugged directly into it?
Depends on what audio format is being used.
If it's something like Dolby Digital then I suspect the average telly won't have a clue what to do with it. And if the TV is connected to an AV receiver via some sort of digital interface then chances are it will just chuck the digits at the receiver unmolested.
So you probably won't get much if any difference whether the drive is plugged into the telly or the receiver. The receiver is likely to get the same string of ones and zeros regardless.