Correct. That's how things used to work with DirectSound3D/OpenAL and CMSS-3D on the X-Fi cards.
Now your sound card (or software) can only take a 5.1/7.1 signal and mix it down.
Yes, thanks for pointing it out but I already know this. I suppose I was just saying that I hoped X-Fi MB3 was grabbing the audio before Windows/Microsoft got its grubby hands on it, like ASIO and WASAPI do, but I guess there still (mostly) hasn't been a solution since Vista changed the audio stack.
As Yethal said, back then (and still today on Source games) games that used OpenAL or DirectSound had complete 3D sound. That means 360 degrees around you and even up and bellow. That 3D information was fed to the sound card and stuff like CMSS-3D could take advantage of that to create an awesome virtual surround experience. Today games pre-render the sound in-engine and output it at most as 7.1 channels (as is the case for BF4).
My bet is that games that have stereo vs surround settings in-game, can output surround sound even if the default output device is set to 2.0 in Windows. I have yet to test it on games that configure themselves based on the Windows configuration. Anyone wants to recommend me one game that does so that I can test it and report back?
OpenAL/DirectSound/Aureal3D all were BETTER than 360°, since 360° only describes a circle/ring rather than a sphere. But you knew that, I'm just saying you don't have to explain that to me.
I was not into PC gaming during the XP era, so I missed the heyday of Truely 3D audio, but I've done a BIT of research (and always open to learn more).
The last game to be able to use OpenAL (besides Source engine games) that I know of was Borderlands 2. You had to edit an .INI file, but then it was there. Wonder if the same trick worked for Borderlands: The PreSequel?
Games did that back in OpenAL times. Now sound engine renders the output already divided up into discrete channels.
Yeah, now if only a driver could get the audio before the sound engine did that, or had a sound engine that worked more closely with SBX/TrueAudio/Sphere etc. I still feel that the incoming VR games are our best hope.
Technology You're referring to is called Dolby Atmos and currently only Overwatch supports it for headphones (Battlefront is Home Cinema only).
Star Wars Battlefield. I forget, but it either has Dolby ATMOS or DTS:X headphone.
Like, almost all games support one form of 5.1/7.1 home theater surround or another, which is why I backed the Smyth Realiser A16 project on Kickstarter, but hopefully more games (and movies, why not) get binaural support and true 3D positioning for headphones.