Surround sound in headphones via DSP has been long proven in gaming, so the technology is very real.  As always, implementation is key.

Question: how does this compare to what the Realiser does? I would think anything less than that wouldn't be worth bothering with. As Tyll has said, unless you have THE headphone they used, it's not gonna work.

As far as I'm aware: a full calibration on the Realizer has you sitting in a room with a good surround system with mikes in your ears. The system takes a snapshot of the acoustics.
Then you sit with the headphones on still with mikes in your ears, and the system looks at the difference in the response.
Then it calculates a filter to compensate for the difference, at which point you should hear on the headphones what you heard on the speakers.
From then on whenever you listen to the Realizer you are listening to a recreation of your ears in that room.

DTS is different in that they're trying to come up with generic compensations.
Their approach assumes that if they do a good enough job modeling what the human ear hears with surround speakers in various positions that eventually they will be able to get a signal good enough that your mind will have enough believability that it's willing to be fooled.
I think that for them to reach that point they'll have to measure the headphone models and create filters which include compensations for the various headphones.
They mentioned that eventually they may be in the business of finding good headphones and measureing them, and then awarding the cans the "DTS Seal of Approval" (or something like that) which the manufacturer can put on the headphones or packaging. Those headphones would appear in a drop-down list in the DTS movie player app.

Again, I see this as a market force from DTS on manufacturers to make better headphones, as the more linear the headphone is the easier it will be---and therefore the more effective---to virtualize the sound of external speakers.

Yupper, I absolutely agree with that.

If they have trouble succeeding with relative efficiency it may start to look like a bad idea to upper-management and get shut down. FWIW however, they did seem pretty committed to the idea.

The one thing I have been wondering about soundstage/imaging is how much of the audible queues that we use to interpret this aspect of sound varies from person to person.    This relates to what Purrin said about conditioning himself to hear the surround sound in the recording.  I find that I am more able to hear sound coming the front with headphones on if I am actively focused on projecting the sound in that way. 

There are many people with contradicting opinions on what is a natural or neutral sound.  I think the general consensus is that each individual hears these differently, which is likely due to a different point of reference for what natural or neutral sound is.  Is it possible that the same goes for soundstage/imaging/surround sound.  Would someone who is used to listening to surround sound find this technology to be more accurate vs those of us who have developed a sense of hearing based on stereo or headphone listening?  Maybe even someone who plays in an orchestra and regularly hears music in "surround sound"?

I would think, going by your questions and notions that a number of minimum requirements would be in order:
1. A relatively flat midrange
2. Subtly elevated low end and high end response
3. An open or semi-open (ventilated) ear cup structure
4. Comfortable yet sturdy ear pads to keep the sound from leaking (too much)

I base this on my prior experience with headphones. Philips (HP1000 & HP9000) and AKG (K240 DF, K500) are very capable in this respect with stereo headphones. The U-shaped equalization for the Sennheiser HD250 II Linear was also very nice every genre of music I could think of (albeit being the exception to the above mentioned criteria in some ways.)

In my opion DTS engineers should look at professional monitoring headphones if they have not done so already.

Has anyone ever tried that Headzone system from Beyerdynamic? It's got this doohickey that you stick on the headphone that measures your head rotation/location or something like that, so it changes the processing depending on your orientation.