Here is another post that I wrote up earlier but didn't post:
Ok, I'm a little confused. Just to be sure, what is not working when:
1. Does the game audio work when the Xbox is directly connected to the TV?
2. Does the game audio work when the Xbox is only connected to the Headset?
3. Does the game audio work through the headset when the Xbox is connected to both the TV and Headset?
4. Does the game audio work through the TV when the Xbox is connected to both the TV and headset?
Note, the headset contains two different audio channels, when connected to the controller, you are receieving the Chat channel, when connected to the Xbox you are receiving the Game audio (the same that would go through the TV). The settings on the Xbox are for Chat audio only. That should be set to headset only for when using the headset, this will cause game audio to play through both the TV and Headset while Chat audio through the headset only, if set to both game audio remains the same but Chat audio will play through both, and of course of set to speakers then game audio will still play through both but chat audio will play only through the TV. Ideally, this should be set to headset only especially when using the X12.
As for the issues with sound, if it is your TV not producing the sound, check the settings on the TV. Make sure the connections are appropriate. You said you are using Composite, that means the standard Yellow video cable should be connected and the Red and White audio cables need to be connected to the corresponding audio for that Video cable. Some TVs, such as my family's still strong Tube TV have 3 auxiliary sources all of which use the Composite Yellow Video cable. Make sure, if you have multiple inputs for video, that the audio cables are connected to the correct coresponding source. For example, your TV may have Video 1 and Video 2 but if the video is connected to Video 1 and the audio to Video 2, then you will receive only Video when on Video 1 and only Audio when on Video 2.
I'm sorry if any of this is redundant or obvious for you but the first part of this message (the 4 questions above) will better help me in assisting you further. Otherwise I'm slightly confused as to what your second post is saying. As a note, when I say game audio, test out a game to be sure. Check to make sure volume is on on devices as well.