Hi cognizant,
Sorry to have to say it, but we are aware that combining FxSound with Surround Sound is a known issue, for which many threads have already been created on the forum, but, regrettably, no one-size-fits-all solution has been found so far.
You can find threads on the topic by typing the search term “Surround Sound” into the search box in the top right corner.
For example, @Milincho reported problems with Razer Kraken V3 Pro headphones about a year ago in this thread, and if you scroll a bit, there’s a reply from FxSound’s owner @james further down.
One possible solution (or perhaps workaround would be a better term) in this case, would be to disable the FxSound Speakers device in Sound Settings while you are using 7.1, and to re-enable it while you are using other devices.
Apart from the “Oops!” pop-up, which you can safely ignore, this should have no harmful consequences.
Some standard tips from the troubleshooting list are also worth applying either way, like trying different frequency settings for your devices, and disabling Exclusive Mode, Hardware Acceleration, and Enhancements, for example.
I’ve added a link to some info on supported devices, bit depths and sampling rates shared by FxSound’s lead engineer below.