I'd like to chime in my own experiences. My setup is a bit out of the ordinary, in that I am using (mid-range) studio gear. Yes, I like to play the occasional game on my media workstation
The stereo panning is extremely exaggerated, as stated by MCXL. I am running in a stereo configuration, and Windows 7's sound settings reflect the same. When the champ is dead center, they sound fine, but as soon as they move an inch to the side, the sound is nearly hard-panned to that side. The stereo image is not linear at all.
Here's my take of it, as programmer and sound engineer My screen is 2560 pixels wide. If the sound source is dead center at x=1280, the sound should play at 0.7 volume (-3db) from both channels. If the source is at the left edge where x=0, play the sound at full volume in the left channel only. Everything in between is a linear approximation, with the same side ranging between 0.7 and 1.0, and the opposite side from 0.7 down to nothing. This results in an extremely simple yet "good enough" approximation of sound attenuation.
That alone will give League much improved positional sound. To the extra mile, you could play sounds outside the viewable area by attenating the one remaining channnel below 1.0, again proportional to half the screen width. So to continue my example, if a champ were 640 pixels past the left edge of my screen, the sound should play at half volume (-6db) in the left channel.
For pure flair, you can look into simple filtering. Sounds below the champ would be gently lowpassed to cue proximity, and sounds above the champ should be highpassed to imply distance. That's poor-man's 3D audio
To go beyond this, you'll want to switch to something like OpenAL or irrKlang Pro. There are other 3D libraries but they tend to have per-user licensing fees that obviously won't scale very well for a Free-to-Play game.