I have an Xtreme Music as well. It does have SPDIF out, but as it was released back in day before optical ports were added directly onto the card, the only way to make use of it, is to have either an I/O front panel bay, or an I/O module. The module has optical and coaxial in and out, and connects to the flexi-jack.
Even if you have one of these I/O devices, you would still need the Dolby/DTS software pack from Creative's US store. The Titanium upwards comes with it included.
Getting Dolby/DTS from a DVD, or a media files with Dolby/DTS tracks, you would not need real time 5.1 encoding, as the 5.1 track is passed on to the external decoder by the software. Most PC games though, do not have Dolby/DTS. Without Dolby/DTS, SPDIF is only stereo. Dolby/DTS real time 5.1 encoding, takes the 5.1 sound and encodes it, then it's passed on to the external decoder.
Some motherboards do have real time Dolby/DTS encoding, but it's usually the higher end boards. If your home theatre kit has Dolby Prologic, then it could be you enabled that. Prologic takes stereo and upmixes it to 5.1. There is an equivalent for 7.1. You will get sound from all speakers, but it's not true 5.1/7.1.
