Not found anything on Google about this. So assuming it's a Windows XP configuration problem instead of WinUAE feature.
Activating "AVI output enabled" mutes game session sound. Playback of video has sound active.
Disabling AVI output during a play session and sound returns to game session.
Using XviD and PCM 44.1 KHz, 16 bit codecs. Onboard Realtek ALC882 chip.
Anyone got any pointers?