To answer your first question, the speakers should be located in front of you, equidistant from your head (thereby forming a triangle with your head and the speakers at the three points, and two legs, head to speaker being the same length). Depending on your speakers and room, you may find best results with them 1 or more feet from any walls behind or next to them.
The reason the stereo effect is conveyed more convincingly when the speakers are in front of you is simple - that is where the microphones were probably located when the source was originally recorded (or in the case of a more engineered sound, that is the effect intended because the engineers will figure that your speakers are in front of you). This way, your speakers are in some way sending the sound to you that the microphones captured - from a similar position. When I was a double degree student in recording we fooled around with recording concerts using a styrophone head with microphones where the ears should be. It made recordings with really convincing stereo imagery when listened to over headphones. It was a true "documentary" type sound that accurately portrayed what the listeners heard at the concert. However, most recordings are made with more than two microphones that are placed to allow the engineers more control during mixing. And their monitor speakers are located... in front of them, so that is the position they engineer the record for. The cool thing about stereo imaging is that with good equipment you will hear in three dimensions - meaning in a recording of an orchestra you can not only hear that the bassoon is between the violins and cellos (left to right), you can also tell that it is behind the oboe and in front of the trumpets (for instance).
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Cogito ergo spud -- I think, therefore I yam
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