My wife and I where playing survival Minecraft 1.0.4 and she could not hear any sound effects but could hear the music. We thought the issue was because she update the client so she rebooted. She still had the same issue. she tried opening a new game to see if she could hear and on her own game it was fine. I joined her game and could not hear sound effects but can hear music.

In both instances the Host of the world could hear just fine.