Good News! PlaySound does work.
I was using Audacity for recording my sounds and there is a setting that is causing it to not work with PlaySound. Oddly, the files work in AM otherwise. I have a different tool I can use.
Update: I am now using a very old version of Acoustica MP3 Mixer (ver. 2.471 - copyright 2001) and it works fine. Crashes after recording on Windows 7 sometimes, but its the best I can do right now.
Help!
The updated PlaySound() routine for Windows7 is not working for me. I thought it was working not too long ago and it is making me wonder if when I installed XVid if that would cause it to fail. Does this mess up MediaPlayer object somehow?
I will uninstall Xvid and test. With all the videos in my game, if I can't use XVid because of this issue...I'm not sure what to do but remove a lot of sound effects. At this time, all my videos in my project add up to over 5 gig. Before I release it, I would like to convert these files to something smaller if possible.
Anyway, I'll post back if I solve the sound issue. Meanwhile, I anxiously await anyone's ideas.
Update: XVid has nothing to do with this issue. It seems TKG was right about the PlaySound code not working in this latest AM version. I know it worked in 4.6, but I'm not going back. I can't find a work-around for this game, but I will for future games. After this game is done, I'm going to build an Inventory plugin.