Would that be actual in-game sounds, as in positional 3D of sorts, or just the CDDA music? Dolby Surround is after all encoded into a regular stereo signal, so game music could come that way to begin with - but I'm not aware of the Saturn being able to do Dolby Surround encoding in realtime.
I remember being told the actual preprocessing needed is rather simple, something like phase inversion (the demo used the simplest form of ProLogic). There were two realtime 3D systems available for the Saturn (QSound and Yamaha's), but I don't think there were any realtime Dolby libraries.
Yep, you can position a sample in the left or right channel either by using the hardware panning feature or by playing the same sample in both channels at different volumes. The same technique should apply to the front/back positioning.
Why, then, weren't console owners (Sega, mostly, but others as well) made more aware that they could hook up their systems to a Dolby Prologic amp/receiver and get surround sound that way? Can't say that I ever saw that feature really advertised... when the most you see of it is a smallish logo tucked in the corner of select games...
Dolby Surround has been use in alot of SNES games (mostly the ones near it's end and alot of the japanese ones). I think there were some genesis games too. The main reason it wasn't really advertised was because to get the full surround audio you need a proper receiver and speakers for it. Something that until recently with DVD wasn't generally within reach of the average gamer kid. That's also why Qsound was more popular since it could use simple stereo speakers to do it's rather poor thing.