To an extent some of it was, and unfortunately it regressed a lot when Vista came out. Solutions like A3D simulated room environments but were still just DSPs, they didn’t truly take geometry into effect. Check video and video out for some awesome examples of how audio could be handled in the engine. is the ‘next gen’ kind of stuff I’d like to see implemented at some point (not sure if that was what the original thread creator was envisioning or not, though).
EDIT:
I stand corrected. EAX used DSPs but A3D actually did take geometry into effect.