The Output Sample Rate is only used if the Apply Sample Rate to All File Formats is checked.
The sample rate is also used when playing modules.
If you have original files in a higher sample rate than the output device can handle, there would need to be a down-sampling done at some point. You can do that in XM Play with the Apply Sample Rate to All File Formats checked and the Output Sample Rate set to the highest your device can handle. But this would then apply to everything played, forcing source audio with other sample rates to be up/down-sampled to that setting with possible degraded audio. The Dithering and Noise Shaping settings should help with any sample rate or bit depth conversions, but any conversions will still alter the sound. And then you'd have to switch it back and forth depending on what you're playing.
If 'Apply sample rate to all file formats' is unchecked, XMPlay will try setting the audio device to the same sample rate as the file. If the device doesn't support it, it'll automatically lower the frequency/resolution and apply downsampling, so there's no need to change settings manually.
I also set the Output Resolution to 32 bit. Since I use XM Play's preamp and EQ DSPs, XM Play converts any source to 32 bit floating point internally to do the DSP processing on it. So the best thing to do is to send it out to the Xonar at 32 bit to avoid any additional down-sampling after the DSP processing.
32-bit output is actually integer, not floating point, so there will still be a conversion there.