Is imaging reality?

Its hard to be certain what exactly you're talking about. If you mean is imaging reality, as in is it some real thing we are able to hear then the answer is of course yes. Close your eyes, you can tell perfectly well where things are just by sound alone. 

Anything other than that and now you're talking recording technique. Minimalist recording- two microphones, two channels - when recorded and played back properly can recreate imaging really well. The XLO Test CD has a track recorded like this and its uncanny how real this will sound when your system is set up right. 

Other than that most recordings mix in extra tracks that are then used to place instruments where they want them. These kinds of recordings are all over the map in terms of what they are trying to achieve. They are art. Sonic masterpieces. Would you look at a Picasso and say, uh, did that woman really have two of those over there like that? I don't think so. Then again, with Picasso, that would be the least of your problems.

No, what we hear from a good recording on a good system in a well treated room presents as something I've never heard in a concert hall with respect to pinpoint imaging.  I'm not a professional musician, but while I lived in the midwest I attended 20-30 concerts a year in many different venues.  Full scale orchestral, Bach passions, recitals, and chamber music-- pretty much a full spectrum of classical.  Even with string quartets, sitting three to four rows back center hall, if I closed my eyes, I could usually not pull apart the 1st and 2nd violins unless I knew the work well enough to distinguish the parts.   I actually had this discussion with one of the cellists of the Indianapolis orchestra.  He advise me to loose my front row seats and go for 1st row balcony.  His point was that "symphony" implies that the parts are to be heard as a whole (soloists excepted).   My response was that I could stay home and hear that on my very good system.  I came to live performances to experience something I could not experience at home, that being watching him and his colleagues work feverishly to do justice to Herr Beethoven.  I also told him I dearly loved the complex tone of his instrument, which was utterly lost even a dozen rows back.   All of this is OK as far as I am concerned.  If all I listened to at home was large scale orchestral, I might not be too concerned about imaging, but I do listen to other non-classical stuff where the engineer and musicians intended a musicians in the room effect. 

@OP,
Yet another interesting post!
I concur with a number of previous posters-
Listening to a live concert performance usually doesn't have the focus of instruments that a recording does.
But, listening to a live performance allows a more personal connection with the artist(s), so whatever is lacking in precise imaging is substituted with the thrill of the moment.
Bob

It's a simulation.  That's the best we can shoot for.

Lincoln Center,Carnegie Hall,Radio City Music Hall..... If your system can make you think your in the front  at any of these venues you must hff ave one hell of a system  or your dreaming .... I would say dreaming. I have been to concerts  there and the sound was amazing. I do mean I sat close to the stage ,within the first 8 rows .I have been to out door concerts Classical and Rock ,Bway Shows. Alot goes into the recording of live shows ,to me its hit or miss with alot of misses.....