So I've basically got the choice between a solid 5.1 setup (cost a few grand) or an open pair of Sennheiser HD800, which would you say is better to go with?
As good as your Sennheisers are, more discrete channels > less discrete channels.
It's funny how in your defence of your expensive system that you have to resort to calling people fools to justify it.
Maybe you just prefer surround sound and need justification for your purchase, then so be it. At the end it's up to you on what you use.
There's nothing to defend, or justify, when discussing a multi-speaker, multiple driver array, full-power sound system against a pair of cans.
In your OP you said:
The work they have done feels better than any DOlby Atmos speaker set up
You set the stage with this statement, not me.
At the end of the day, a binaural audio technique, such as that used in TLOU2 or Hellblade, is still coming out of only 2 speakers. It has the ability to mimic sound in a 3D space, but it's still parlor tricks, far from perfect, and a far cry from having discrete channels produce the sound source. That's not opinion, that's just the nature of the technology.
Is virtual surround a fascinating and interesting solution? Sure, but your whole case is based upon premise that it is better than multi-speaker arrangements that process sound in a 3D space to a much better degree of accuracy. And that's not even factoring in dedicated drivers that are much much bigger than the mere inches (or less) of drivers in headphones.
For a game that is focused on binaural audio experience which has a core game mechanic of "listen mode" and that headphones can deliver the most accurate audio signature without interference from environmental factors?
I assure you, anything from a cheap Panasonic home-theater-in-a-box to a complete Bowers & Wilkins discrete surround system can also be free of external environmental interference.
Considering looking at what the majority of what people have said in this thread, form the polls - which even surprised me on how many people were using headphones and the fact that Sony is going about next gen audio is saying a lot for the usage of headphones.
Ah, there it is: the motive.
Headphones are a convenient solution for a myriad of different scenarios over a dedicated surround sound system, but that hardly supports the far-flung conclusion you've come to.
Seems like a good place to ask this,
I've got a 5.1.2 setup with two front height speakers for atmos. The game is recognizing my system as a 7.1 with surround side and rear speaks when really I've only got rear surround. Should I switch the settings to a 5.1 or leave it as 7.1 for the best experience?
Only count your ear-level speakers in this configuration. You have a 5.1 setup, not a 7.1, so adjust your PS4 accordingly.