Well, to offer a completely contrary view, I think Dolby Headphone is rather good.
When you think about it, you only actually have two ears. If you can accurately reproduce
at the ear what is supposed to be happening then you can reproduce
any sound perfectly - and indeed do a much BETTER job of it than even a large number of discrete speakers. You can even achieve effects that are quite impossible with speakers, like having someone whisper directly into the listener's ear. You can't make speakers position a sound closer to you than the speakers are.
Granted, Dolby Headphone can't achieve all this.
Instead of being a recording directly designed for Headphone listening, it attempts to reproduce, through headphones, what you would hear if you were listening to the original 5.1 recording over speakers - including not just the actual 5 channels of direct sound, but also wall reflections from the virtual room that the virtual speakers are sitting in. Inevitably this is less convincing than real speakers in a real room would be.
Advantages:
- No problems with room acoustics.
- You don't deafen the neighbours in the way you would with speakers.
- You don't get quite the same all-the-sound-is-inside-your-head feeling that you get with normal headphone listening.
- In terms of purity - lack of distortion, neutrality, clearness - the quality you get from a pair of headphones is vastly much greater than you would get from a set of speakers that cost the same amount of money.
Disadvantages:
- Not as persuasive as real speakers.
- Front to back positioning is not that great (although front-to-back pans are detectable, and left to right pans very clear).
How good the headphone output is will vary a lot from device to device. I once made a side-by-side comparison between Sennheiser HD600 'phones plugged into a Denon A1SR using Dolby Headphone, and the same device driving B&W Nautilus 805/HTM1/CDM SNT speakers (with a REL sub, I think). The heaphones won absolutely hands down. No contest at all.