I found the post..

http://forums.steampowered.com/forum...ht=ALCHEMY+5.1

5th post down, copied/pasted below

I went back and dug up some info from when I was playing Insurgency..

If you plan on using DirectSound, then you'll need Alchemy I believe. Duration: 10 Buffer: 4

Originally Posted by thomase
For HL2, you have a few different options as well. The HL2 sound engine is software based and creates a mix of 2 (2 speaker or headphones), 4, or 5 channels. If snd_digital_surround is set to 0 (default), it uses DirectSound3D to map these 2/4/5 channels to 3D coordinates. The result is that the 2/4/5 channels go through a final DirectSound3D mixing phase. The 2 channel output DOES NOT include any special virtual spatialization processing for headphones. I don't really understand why they did it this way, but that is the story. Maybe they didn't know how to do direct multi-channel output, although that is hard to believe.

If snd_digital_surround is set to 1, instead of using DirectSound3D, the engine sends the 2/4/5 channels DIRECTLY to the associated channels. This mode was added in a patch some time after release. For some reason, doing it this way instead of through DirectSound3D fixed some problems for Soundstorm users with DD encoding to a 5.1 receiver, hence the name of the variable snd_digital_surround even though it REALLY has to do with DirectSound3D. You don't need a Soundstorm to turn on this feature and get 2/4/5 direct channels instead of going through DirectSound3D.

So, for a 5.1 setup you probably wan't to be in "Game Mode". Set both the game and Creative speaker settings to 5.1. Now you have 2 options; you can set snd_digital_surround to 0 or 1 and see which you like best. I'm guessing most people with 5.1 setups prefer setting it to 1.

For a headphone setup, I'd recommend experiementing between 3 different settings. As a common setup for all 3, first you have to untick "Synchronize with Control Panel". Then set the game to 5.1 mode and set the Creative panel to Headphones. Make sure you enable CMSS3D and set MacroFX and ElevationFilter to Auto or Off. Now for the options:

1.) Set snd_digital_surround to 0 (default). The engine will map the 5 channels to DirectSound3D hardware voices and your X-Fi will virtualize this for headphones.

2.) With the X-Fi in "Game Mode", set snd_digital_surround to 1. The engine will send 5 channels directly to the X-Fi, bypassing DirectSound3D, and these will be virtualized for headphones. The difference is that when sending to the X-Fi as raw channels, the X-Fi will use it's own pre-determined locations for the virtual speakers it is trying to simulate. When in DirectSound3D mode, the game controls these positions. They are certainly different, but I don't know exactly what the positions are in each case.

3.) With X-Fi in "Entertainment Mode", set snd_digital_surround to 1. This is similar to option 2, but the X-Fi will add a little extra processing to simulate the behavior of speakers in a virtual room (slight reflections, etc.). I find that this externalizes the sound image a bit more, but you may feel that it interferes with the game's own environmental effects.