I'm a little late, but some of you guys are confusing what Dolby Headphone is. It just attempts to recreate speaker sound (VERY effectively, in my opinion), UP TO 5.1 discrete surround. So while it works excellent in movies, it also works excellent in stereo. Dolby made the fine decision (unlike, say, Creative) of not messing with any stereo-to-multichannel simulation, so when you use DH with a stereo source, it will just try to emulate a set of stereo speakers (i.e. put the stereo sound as it was coming from the front).
If you wanna create a surround soundfield out of a stereo soundtrack, you can use Dolby Pro-logic II before the DH encoding. DPLII and DH are always very closely related so you will almost always be able to have that option. DH is just about simulating speakers, not simulating surround. And it works great. It has not much to do with crossfeed. As someone else said, it just takes the sound out of your head, and blissfully so.
By the way, all other cheap copies I've tried of this technology suck greatly (Cyberlink's, Arcsoft's, etc), but I haven't tried CMSS-3D headphone for 5.1 sources. For stereo sources I did try it with the Xmod, and it pretty much sucked (probably because Creative made the aforementioned mistake to integrate stereo-to-surround simulation with speaker simulation - like DH and DPLII combined). I always listen to my music with DH without DPLII, even though DPLII has a "music" setting, and it works great.
DTS is also coming out with "Surround Sensation", a competition for DH. I hope it's at least as effective, or better (like being able to encode 7.1 streams).