Dolby digital is only transmitted using the optical cable, if you're going to connect RCA directly to your xbox, you're not going to get surround sound.
The most you can get using a stereo-RCA output using that converter, is just 5 speakers that "sound like" they're surrounding you, but you're not getting true positional sound that you want out of a 5.1 setup. Since the source is natively 2-channel, there is no way to make it sound "5.1 positional surround sound" unless you used some sort of DSP in a receiver such as Dolby PL II or DTS Gaming, but you don't have that.
Therefore, if you want positional 5.1 surround, you need some sort of system that will take optical as an input and can decode Dolby digital signals OR a system that can take any stereo input, and can process that sound using a DSP such as ProLogic-Gaming.