No, the switcher isn't necessary it is just that I have my other systems connected to it. Xbox 360, PS3, Cable Box, plus I'll use it for the new systems when they come out this year.
I don't know about a reduction in audio quality I figure it is just a optical signal with a pulsing LED for the conversion, from digital to optical, so the thought really hadn't crossed my mind since it's still digital until it hits the DAC.
Surround sound listening with a bifrost is theoretically possible with a simulated surround soundstage. Some of the "surround" headphone do just that. They simulate the surround by raising and lowering the volume of different sounds to give the impression of direction.
Although, some higher end surround headphones actually have multiple speakers.
I've never used surround sound before for anything so I don't know if it's worth it to buy more gear for that reason. It does seem like something that would be nice to have though.
Unless you are buying the Bifrost for audio quality for music as well as gaming then I would get the surround gaming headphones. But if you want it for the stereo only audio quality then I would probably get the Bifrost
Also you could get the surround headphones for around 250$ and a Magni / Modi combo (99$ x 2) which people have said is pretty good instead of the Bifrost.
The astro mix amp (129.99) I don't know too much about but I think that you can buy it separately and use it for simulated surround sound with any pair of headphones. You could also still add the Magni / Modi combo if you wanted for audio and gaming.
Please read some review before buying any of these products especially the surround headphones because they all have different features such as variable EQs, software for editing parameters via computer, etc.