Originally posted by: Auric
As far as I know positional audio (stereo with effects) is a basic function of DS3D and differences in the compatible physical audio system don't matter (apart from quality, performance and other functionality &c.).
What are you currently using and do you not notice any effect?
DS3D defines an API, but it doesn't define the actual technology behind the positioning. For headphones, you need Head Related Transfer Functions(HRTFs) to properly morph a sound and its positional data in to something that would sound like it's coming from the intended direction, and the HRTFs used are where sound cards usually differ. Different HRTFs have variances both in processing power required and in quality, so a good HRTF will require more calculations to be done, and in general requires a stronger sound card.
As for the OP's original question, yes, the X-Fi's HRTF's can encode up/down audio. However, up/down tend to be the weakest directions of HRTF's, so the effect may not be as pronounced as with cardinal directions.