I had a similar problem. It was really strange. I think WMP, QT, Google Video (desktop app) all worked fine, but flash audio in IE and FF wouldn't work, as well as system sounds. I also couldn't choose an audio device in the control panel.

After doing some searching, the fix for it was to download the K-lite Codec Pack. After it installs, goto the tools folder where you installed K-lite and run fixcodecs.exe. There will be some checkboxes, and I believe you have to check "fix system sounds".

I tried a lot of things before stumbling across this solution. It's a strange problem, but this worked. I think it has something to do with the registry.