This is insanely great! Now, imagine if binaural audio was combined with an accelerometer sensor (in the earbud/headphone) so that when you turn your head, the sounds' origins would be adjusted in real time to reflect your new head position. This would be awesome for video games and movies.

To make this work, you would need to record the location of every sound. Easy to do for a video game (where the software knows the exact object or person emitting a sound). But it would be harder for movies, as this sounds localization data would need to be captured on set and handled during all post production work.

I did a little research and a field known as ambisonics (http://en.m.wikipedia.org/wiki/Ambisonics) generalizes this concept to more than 2 speakers. Now that I think about it I remember that the guy behind the xiph.org videos debunking digital audio myths lamenting that not enough research was being done on ambisonics.

Binaural + Binocular + VR headset makes for a "Being John Malkovich"/"Strange Days" recorded experience.

https://www.youtube.com/watch?v=oXaxVLNMIxU

I just got my haircut after listening to this, and it was creepily similar.