Guys, if any of you bothered to read
THIS (link on how the Smyth Realizer works), there would be much less argument and back and forth in this thread. It appears that what most of you have done is read the front page, did not dig deeper into that website, then come to your own conclusions that it's all a bunch of marketing drivel. Some of you read so superficially that you questioned why it had to be a hardware solution.
This is how it works, in a nutshell:
1. Basic premise: The Head Related Transfer Function (HRTF) varies between individuals - it depends on: shape of head, distance between ears, distance to upper torso, shape of pinna, shape of auditory canal, etc. The reason why headphones sound artificial is because the HRTF is not taken into account, nor are headphones capable of generating room cues.
2. They insert a pair of microphones into earplugs, and put these in your ear. You then sit in a room with a sound field generated by 5.1, or 7.1 speakers, and a variety of test tones are played, with your head pointed in different positions. This determines both the HRTF and the sound character of the room. As you may realize, each individual who wishes to use this system needs to have their own set of personal measurements taken.
3. They use this to generate a correction filter which is mixed in to your audio with DSP. THIS is what you listen to when you listen to your headphones on a train. Even if you lose the benefit of head tracking, you still gain the benefit of HRTF correction and insertion of room cues.
4. When you are at home, the system incorporates a head tracker so that it can change the mix of the soundfield depending on the position of your head.
I hope that clears it up.