Do I need to do something special to get toslink input to work?
Just to be sure:

You mentioned checking the Sound control panel on the Macbook input side (I assume you selected Line In as well), but what about the output device on the Mac Mini?  Plugging in the cable usually switches system output to Line Out, but not necessarily the output of whatever application you are using.  So check both the Sound control panel output and the settings of your playback application (if it has any).

Also make sure the TOS connecter seats all the way (usually with a click).  The Line In defaults to analog and, IIRC, it only switches to TOS if it senses a non-conductive plug clicking on some little switch.