I am trying to set up my surround sound system for Skyrim and I'm running into a few issues.

When I go into the game I can hear general sounds such as birds, distant water, etc. on all the speakers (three in front, two in back). However, when I talk to an NPC or walk past a conversation I cannot hear it "behind" me. I used to play Skyrim on the 360 and I had the same surround sound setup. I could initiate a conversation with an NPC turn around and start to walk off and I could hear them in the back ground (behind me). This applies to so many other examples in the game but this is the best example I could come up with. I'm running an optical cable (sound through HDMI is not an option because my receiver does not support it). What do I need to do?

You should look then, either on your mobo's manual (about your optical cable port) or you should try some adjustment's on your receiver. !!!!!

(have you tried to switch to auto sound adjustment ??? - maybe you try to play with DTS on for example)

If I have understood you use the optical cable output from your mobo to the optical in on your receicer.

I'm not too familiar with optical. But let's start from the ground up. What sound card or onboard device do you have? Does this sound card or onboard device have supporting software? Does the supporting software have special effects such as CMSS with Creative devices or similar SRS and environmental effects with onboards? Disable them is they are active. Make sure Windows sound options is set to 5.1, as well as from your sound device's 3rd party control panel. Back in the Windows sound control panel, set the output of your device to 24-bit/48kHz, or 16-bit/48kHz.

Yeah, that's more appropriate. !!!!!