The O2 amp can't do anything with the digital signal in an optical connection. So, you should use an analogue output... With the TiHD, you can use either the hp jack or the RCA connections. Just make sure the TiHD is set for headphone surround processing.
I say get an Omni and the best headphone you can afford. From what I read, the K701 was revised to sound like the Q701, I do have the Q701 and that headphone is a strong value. I like SBX surround better than Dolby Headphone, it has less reverb and cave-like feeling, better detail and just seems to create a nice natural surround soundstage for me.
If you desire more, start saving up around $200 for a nice amp or DAC/amp combo (with optical input) that will give noticeable gains over the Omni (which already will be noticeably better than motherboard audio). For the K701, I suggest a solid-state Matrix M-Stage or tube hybrid Project Ember. If you want a DAC/Amp combo, the DAC is going to need an optical input, like some of the Audio GD products or the new Geek Pulse. At this point the Omni or any other soundcard would have most of it's major audio components bypassed to use the external gear, you're just using the "card" for processing the surround effect, and since all the Z line uses the same processing, seems clear to me to get a fair one that costs the least.