Alright I have a Logitech G35 Gaming Headset, It does 7.1 surround sound but it cannot produce surround sound while using Dolby Digital AC3 and DTS files. It connects through USB I tested files using MPC and WMP. Multichannel WAV or WMA seems to play the surround fine on the headset.
What I want to do is run my MKV movies through some filter that takes the ac3 or dts audio from the MKV and plays it back as a WAV or WMA on the fly.
Would "AC3 Filter" help? What settings would I use
It seems you're using a DirectShow player (which?). Do you know which decoders or other filters are you using? I recommend not using codec packs, right now you can deal with most content with LAV Filters. I recommend madVR as well but that's beside the point (video renderer, nothing to do with your problem). If you just want one player that does it all, VLC is a good choice. (And yes, AC3 Filter will solve your problem, but also probably the decoder you're using right now, only that you haven't configured it correctly.)