I have a pretty small home, not "tiny home", but damn close enough.
I use 2.1 since there is no room or anywhere to have a dedicated stereo listening room, and I watch a lot of movies and shows, and Youtube music/concerts/video, nearly equal to just listening to music. Though NEITHER is perfect, they are both great mixtures, and suit the space and lifestyle perfectly, with what ever compromises more than willing to be paid. I can't say that I experience the dialog issues others mentioned, but I am betting I am experiencing 'some', but it's not as bad due to my speakers being only 7' apart.
Honestly I wouldn't watch "TV" of any kind any other way. Regular shows suffer some, but in general I feel like I am getting way better experience. Things like NPRs "Tiny Desk" concerts are literally, live performances in my tiny living room. I've never had surround 5.1 so I can't speak to that, but 2.1 has been a mainstay and a must for me for years. Though I would bet a 5.1 would be a better movie experience, a solid 2.1 system will do really damn good I would think in 'most' living rooms.
I use a Rega Elex-r integrated amp, fed by a Black Ice FX DAC, and a REL TX5 subwoofer. The DAC gets TOSLINK from the "TV" (I stream to a Google Chromecast Ultra puck on the TV), and an older Pioneer Elite PD64 CD player. The Chromecast Ultra Puck will receive 24/96khz, so 'high res' from Qobuz/Amazon Music etc, videos, movies etc, and display the app the TV being broadcast from computer or phone.