1. It should work just fine. But as I said, you have to correctly configure the DEQ2496 so that it works at the line signal levels of home-audio equipment (I believe there is such options somewhere in its highly complex menus -- consult the PDF manuals). Otherwise, you will not fully utilize its 24-bit dynamic range, which is a bad thing.

2. Yes, if you want a full EQ for every channel. But I would start with just the two front channels first, which is all you need for 2.0 or 2.1 listening.