To all of you who are experiencing sound problems, there is a workaround (not sure if it works in Win7, but it's worth a try).
Go to SubGuru's page (
http://www.subguru.com), go to downloads and get the SCSoundEdit Utility (it's under general downloads and tutorials). It works for 688(I) as well.
Once you're downloaded the file, run the scsoundedit.exe, open the sfx.agg in the 'sfx' folder that's in your 688(I) installation directory, and unpack all the sound files into the sfx directory.
The sound effects should work now. The downside is that you might experience some crackling.
Hope it helps!
EDIT: Added SCSoundEdit Utility to the
Subsim Downloads section. -- NS