Is this even possible as a design to create surround sound so close to the ear?
It can have some effect but it usually doesn't work very well. It's not really the distance...
Usually we turn our head, sometimes consciously, sometimes subconsciously, and sometimes to "look" to see where the sound is coming from.
That gives multiple triangulations to help locate the source of the sound. Obviously that doesn't work with (regular) headphones.
There are a few head tracking headphones that change when you move your head. I've never tried those, and the ones I've seen (online) are expensive. But logically, that should work.
I've tried Dolby Headphone (with regular headphones) with a 5.1 track and I did NOT get the impression of sounds coming from behind. I have a test-DVD that plays one speaker at a time. To be fair, Dolby doesn't claim it makes surround... They just say something like it "enhancing the experience" with headphones and a surround-sound track.