I guess I don't understand why you think "sound engineering" is relevant to the point of being required, as the question to me here is more about what happens at something like a "session"? I used to go every week to play with a large mix of random people at an Irish bar... we definitely didn't have monitors (or a sound engineer ;P). People have been playing music with each other in groups for a long time, and being within 11'3" of everyone seems unrealistic. I have been in drum circles larger than that (I am at best a percussionist, though I was dabbling with fiddle), and I would assume that to be the case where precision matters the most. The stage we were on (which is weird: most sessions I've seen--and I have seen more than I participated in as I got involved in this stuff due to dating a musician--are at dining tables) was definitely over ten feet wide.

FWIW, when I asked my professional musician ex about all of this (which was before I read this comment of yours here) she also mentioned monitors, but it was because she claimed a core consideration for her with respect to distance in a performance was volume of her instrument drowning out her playing companions (and when I pushed into that she said if the acoustics were bad enough they would use monitors). She also told me that people she knew were already using software to play with each other over the Internet. If nothing else, I feel like "proof by counter example" should win here vs. your statement that this is just somehow impossible? As others have pointed out in this thread, the SoundJack people exist and claim to do this (whether or not you believe they have users: my ex apparently knows of users, though I don't know if they are using the same software).