Answer:
Peter & Santa Claus works with either the system sound or Sound Manager
3.0. It is true that Sound Manager 3.0 offers superior sound quality.
However, Sound Manager 3.0 requires a little more memory. It seems that
Sound Manager 3.0 takes an additional 10-30K of system memory when sound is
being played. If this memory is not available to your system, some audio
may not be heard.
To free up some memory, try the following:
1) Close all windows in Finder.
2) Quit any running applications.
3) Remove items in your System Folder that are not needed by Peter & Santa
Claus (for example: Extensions and Control Panels).
4) If all else fails, try taking out Sound Manager 3.0 and using System
7.x Sound instead. Note: The goal is to have at least a 10-30K largest
unused block (instead of 0K) AFTER launching Peter and Santa Claus.
Reference: Peter & Santa Claus Configuration Requirements