How to improve PC Gaming Surround Sound

The Asus Xonar seems to be getting better reviews than the Creative sound cards these days.

Also have you tried gaming on a proper 5.1 speaker set with a proper sound card? (Proper meaning not a cheap 5.1 speakers that could be had for $100 or less)

Also what games are we taking about here?

I am guessing you are using onboard sound to output via TOSLINK or Coaxial to a halfway decent 5.1 (or better) receiver?
Odds are it is only outputting in 2 channel PCM, not DDL or DTS (both encoding schemes for digital 5.1 surround).
Check with your motherboard/sound card manufacturer and see if your product supports DDL (Dolby Digital Live) or DTS encoding.
If it does, you may need to use their driver package to enable it (I believe Vista only allows PCM output through the control panel).
If not, look into ASUS' Xonar D1 (PCI) or Xonar Dx (PCIe), both of which offer high quality DDL encoding along with a very nice sounding analog output section.

As for your confusion about the different encoding schemes, I will try to quickly clarify a little for you.

DTS and DDL (Dolby Digital Live) are both different ways of encoding a 5.1 surround signal.
Having a DTS or DDL capable soundcard and DTS or DD decoder will enable you to output 5.1 surround through TOSLINK or Coaxial from your computer.

Dolby Prologic II creates virtual 5.1 surround from stereo content.
Basically just sending stereo to all channels with a bit of fake 3d signal processing.

DTS Neo 6 is similar to DTS but is designed to handle 7.1 content instead of 5.1.

EAX is a library of digital signal processing effects that was used to help create the illusion of ambiance in 3d games.
Its time has largely passed since the introduction of Vista's new sound stack and is rarely used in newer games.

Newer games are not pre-encoded in stereo, surround or anything else.
They have sound engines that are designed to output to as many (or as few) channels as you have.
For the most part, 5.1 gaming seems to be the standard, if you have the hardware support.
If not, stereo will work just as good.

A few useful resources:

Dolby's 'Understand' Page (see their different techs on the left)
Home Theater Focus's Surround Page
the DTS Wiki Page
and the EAX Wiki Page

Thanks for the responses. I actually have a 7.1 $3000 setup (including speakers) and a good AV Receiver. I am currently using an onboard soundcard. I used to have a creative X-Fi but I didn't notice much difference. The best I've been able to come up with is using my analog function on my receiver and setting it to "pure" Amp only mode and letting the computer decode / play. Still though... it's not as good as Dolby Digital over Xbox and PS3. I just find that ironic. I'll look into the suggestions above. Any other suggestions?

Yet another reason to hate Creative.
The DDL/DTS Encoder Pack will cost you $4.72 (see link)  
Without it, your X-Fi is only capable of outputting stereo PCM, same as your current onboard.
If you intend to go this route, make sure to check you exact sound card is supported with the Encoder pack under the 'Details' section.
Reason being, not all X-Fi cards have an X-Fi chip onboard.

If you have already sold/given away your old X-Fi, I would recommend against buying another sub-par Creative product.
Unless you need a top end DAC with the soundcard, look into the afore mentioned ASUS Xonar D1 or Xonar Dx, either for roughly $70 after MIR.
They have DDL (Dolby Digital Live Encoding) and no BS getting it working.
In reality, ANY card that has DDL or DTS encoding should work just fine for you so keep your eyes open if you want to go with a less expensive option.

The Auzentech Prelude and Forte are both high end cards but a bit overkill for you.
Although they do feature DDL and DTS encoding, they are designed more for their DAC capabilities and the price tag shows this.

I did a little tinkering and now I'm even more confused. My onboard Soundcard IS capable of sending DD & DTS to my receiver via SPDIF. In the windows 7 sound options it gives an option to test it. It works. I popped in a DVD and bam... outputs Dolby Digital 5.1 just fine. But with games... 2 channel PCM only  

Soo... if I'm understanding correctly. I need to look for a sound-card that can encode DDL or DTS from the 5.1 sound engine of the game, out-put the signal, then my receiver needs to decode...???

I'd like to keep the price of the card under $150 but that's not set in stone. I actually have a nice high-end card that I use for music production... but it's not really practical for this situation.