This is something I saved as a draft because I wanted to test it more (optical), but I'll post it now..since someone else confirmed theirs worked as it should.
What if I told you that I ordered a Dac that night (not the one I posted)..it has Optical & Coaxial + 3.5mm output. Supports up to 192kHz. It came in... I plugged it in. And it's working. 👀
At least the 3.5mm output is working. And I don't know if it's maxing out at 96kHz. I had my brother play Cold War with just his headset connected to DualSense... then told him to exit the game, plugged in the new dac.. changed audio output settings to the dac (yes it was there), checked to make sure 3D Audio was not disabled. Told him to fire up the Cold War again, and when he played a match..he said it was louder and more clear. He was able to sense sound around him more often. (At one point he thought I told him to throw a grenade, but it was someone in the game to his left, that said it).
Now I haven't tested the optical connection because I can't find my cable at the moment. But it should work. As long as it sends PCM 2.0 to my Sony MDR-HW700DS, I'M GOOD!
Also I had to pull out the mic connected to the headset, because it was causing sound issues. But the DualSense' mic worked perfectly after.
Now I already wrote too much. Here is the device. But it makes me wonder if there are other more expensive/advanced ones that the PS5 supports.... OR did that recent PS5 firmware update expand support. 🤷🏾♂️
Reiyin DA-DD
Amazon has it for $27 Prime Shipping.
I don't know if this will help others, but it's perfect for my situation. I just don't trust Sony to unlock 3D Audio through HDMI anytime soon.