System sound didn't work at all for me in the sim through 2.0, 2.1 and 2.2 SDKs. However, a few days ago it started magically working! This is with the 2.2.1 SDK, but building against 2.0 targets. I was really pleased!
Then yesterday I tried again and it no longer works. Same code, same machine, same build settings - same everything (different day). I tried all possible combinations of SDK version, exe version, config (debug/ release). I searched around again (hence hitting this thread), and tried a few other things (such as Marc's suggestion from Nov 19th of initialising the audio services API, even thought that shouldn't be required for system sounds AFAICS). All to no avail. It really does just seem to decide to play only when it wants to.
It's all very annoying because I'm trying to try out a lot of different sounds, and doing manipulations of them in wave editors and the dev cycle is much longer than it needs to be.
If anyone has any more ideas, I for one will still be monitoring this thread.