I make digital music myself. I've had that moment myself, where for a quick moment I thought, surely there could be some 'proper' way of rotating an audio source around your head.
And well, there is not, it is always just an effect thing.
As in, even in reality, our hearing is literally stereo, because we've got precisely two eardrums, two membranes that do the detection.
Yes, the ear flaps shape the sound, but you can do the same shaping with just effects. Make it a bit more muffled when it comes from behind, for example, and hope you don't need to also portray that something muffled comes from the front. And of course, always slap a heavy virtualizer effect on there.
In the end, it's smokes and mirrors that our brain then interprets as something spatial. I don't have a problem with smokes and mirrors. I do still find it humorous, though.