You may want to take a look at the Hardware Faq at the top of this page. It has all the info you need on the PS2's sound capability.
To answer your question. Yes the PS2 can produce DD5.1 sound. Though it is only used in cutscenes. There are select titles that also use DTS5.1 (real time, not just cut scene) as well.
A few games from EA now use a software based approach to DTS. I know SSX Tricky does this as well I believe the latest Hockey offering from EA. It seems to work pretty well although from what I hear the XBox DD is much better.