I understand this is a relatively common issue and I've seen different solutions work for different people. Like many others, my upgrade to Windows 7 caused a huge loss in sound performance for me. I don't have a speaker system anymore, I live in a barracks so I only use headphones. It seems as though my headphone quality has diminished to that of a default set of ear buds that come with a cheap cell phone.
I can't get the headphones to register in the Realtek HD Audio Manager either. It shows the digital output, and digital output(optical), but not my headphones. The headphones were previously shown in the Realtek HD Audio Manager before, and that is where I adjusted them to have beautiful sound. I've tried updating the drivers, reverting back, moving them around, etc. The headphones WORK, but they sound terrible. I literally get better sound quality plugging my headphones into my Iphone and listening to Pandora.
Here's applicable information for you guys:
Motherboard: ASUS M5A97 AM3+ AMD 970
Audio drivers: 188.8.131.5251
Headphones: Sound Blaster Arena SB's with detachable mic
OS: Windows 7 Home Premium
Additionally; I'm receiving my pair of Audio Technica ATH-M50's tomorrow, they're using a 3.mm jack instead of USB so maybe that will change things up I'm not sure.