The decoding needs to be done either on your receiver or the sound card. In either case there needs to be a chip onboard that handle the encoding(sound card) and decoding(receiver). If that link has a missing part then you end up with stereo output.
I'm just concerned with the digital data stream. Do I need a 7.1 audio card with SPDIF to go to my 7.1 receiver or will the same data be output from a 5.1 card or for that matter a stereo card if it has SPDIF.