Xbox audio stays in stereo format

I have speaker audio as: HDMI audio - stereo uncompressed; Optical audio - Bitstream out; and Bitstream format - Dolby Digitial. My headset audio is: Headset format - stereo uncompressed.

Headset Audio is set to "Headset Format Stereo uncompressed"

You mean the headset adapter for the controller?

The adapter currently supports stereo audio. You'll get all the same sounds that the Xbox One puts over HDMI, just in a stereo format (no 5.1).

Also, you might want to configure your xbox audio to Digital Stereo in case your PC can't encode audio formats other than the digital stereo format. See steps below:

Configure the console audio settings

Note The steps below might differ depending on the type of cable that you use on your console and the audio receiver or the output device that you use.

Start the Xbox 360 console without a disc in the disc tray.

Go to the Settings hub, and choose System.

Select Console Settings, and thenselect Audio.

Select Digital Output and then select the digital output used by your audio system:

this -> Digital Stereo

not -> Dolby Digital 5.1

not -> Dolby Digital with WMA Pro: This setting enables WMA Pro pass-through if your receiver supports the WMA Pro format.

Hope this helps.

The Xbox audio settings I have available are as follows:

HDMI audio:

* Stereo Uncompressed

* Dolby Digital

* Dolby Atmos for Home Theater

Headset Format:

* Stereo Uncompressed

* Windows Sonic for Headphones

* Dolby Atmos for Headphones

* DTS Headphone:X

Tried all of them. Nothing helped.