Amazon Video Xbox App - Controller goes to sleep with wired headphones and I lose audio.

You'd need a headphone amp or a pair of computer speakers with a headphone output between the AV output and the headphones. Connecting them straight to a line level output like the AV output on the Xbox 360 would not only lose the ability to control volume
and be extremely loud, but could kill the headphones.

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I'm a bit unsure of how they've set up the AV output though. Given that it's a four-pole type to also output composite video, it might not be wired to be used for audio only (though it should be).

they are the same as the standard xbox one s controllers, so with pc you can use via bluetooth(audio through headphone jack not supported)

or wired(supports audio via headphone jack)

I believe that Xbox controllers only transmit and receive audio through the Xbox wireless signal and not via Bluetooth. If using Bluetooth to connect the controller, you need to use a different method for audio. Wired controllers and controllers connected with the Microsoft wireless dongle can use the headphone jack for audio.

On the Accessories app when I select Audio the levels have been altered. As i said to get decent audio from my headphones i need to have the controller audio and in game controller audio set to 100%. This suggests either an issue with the headphones [where
there was none before with regular xbox one controllers] or something with how the elite 2 handles audio. Can it be anything else?

Since you're saying Atmos works on the other apps installed on your Xbox I believe it's Netflix's responsibility to fix their app. I have an Xbox One S with the Dolby Atmos app installed. I've enabled the Dolby Atmos Headphone feature and set it in my Xbox
Settings. Upon doing this, the Netflix app would never get passed the loading the screen (the N). Eventually it would time out and give me an error message. I tried rebooting, cache clearing, reinstalling, etc. This was with me launching Netflix with my headphones
already plugged into my wireless controller. So I tried unplugging my headphones before launching the Netflix app... which redirected my audio to my 7.1 receiver (not Atmos, but I don't have home theater Atmos enabled in the Dolby app anyways) and that worked.
Netflix would open again. I then plug my headphones back into my controller and launched Our Planet to see if the Atmos badge would show up, which it did indicating the Netflix app had successfully detected my Atmos (for headphones). I'm assuming the Netflix
app upon loading, goes through a detection of your current setup and someone in that process the settings I had caused it to just spin until the timeout occurred.

Couple questions for you. How are your headphones connected? Via your receiver or via your controller? Also, how is your controller connected? Wireless or wired?