Logitech z506. 2 channel Stereo to Virtual 5.1 surround sound

[76561197974263983]

I'm been reading a lot about virtual surround sound , but not learning what I specifically want to know. For this model that I have, z506, my sound card is a creative sound blaster X-Fi titanium HD. It doesn't allow analog 5.1 surround sound directly. You have to use an optical cable to connect it to something else. If I have that optical cable connected to either a decoder or something like a dvd player (assuming it has output connections), do I lose any quality in sound? I ask this because I don't know exactly what's happening when digital is converted to analog, and for some reason I feel like a decoder would do a better job at converting digital to analog.

My second and last question is about the 2 channel stereo to virtual 5.1 surround sound. Lets say I use the 2 connections (for stereo) from my sound card, and I connected them to my 5.1 speakers. Will my speakers be able to almost guess correctly what sounds should be projected on the rear speakers?

Please correct my understanding of virtual surround sound, because maybe I have it wrong. I heard that all virtual surround does it mimic the front speakrs to the rear speakers. However, I read that it tries to guess what and how sounds should be projected to emulate different sound sources.