What I mean by virtualized 3d audio is like thx true studio pro, dolby virtualization, etc. Basically things that turn headphones into what often sounds very much like a full surround sound (and even 3d) speaker setup. I know it's possible to do in software without dolby or thx or anything, as games on the iPhone use it, for example in games like papa sangre. There's also an audio game called shades of doom that preportedly can do virtual surround, although from my experience it's not that great. I know with the right tools it is definitely possible to do virtual 3d with headphones though.
Hope this clears things up.