For the record, solution is:

1. use a proper distance model.

alDistanceModel(AL_LINEAR_DISTANCE_CLAMPED);

2. sources need AL_MAX_DISTANCE - you can also add AL_REFERENCE_DISTANCE and AL_ROLLOFF_FACTOR for good measure to have better effects.

3. AL_ORIENTATION must be correctly set on listener!!

Yes, i'm replying to my own thread from 2008, i only now correctly solved this properly.