yes, grab the svn repository (trunk) and compile it yourself. there are vc7 projectfiles in the svn, too - but i think noone has updated them for a long time. there is a possible workaound for this. the projectfiles are xml-based and contains a version string for vc. copy the ufo.vcproj over to ufo_7.vcproj (if this file does not work for you) and edit the version string on line 4 of this file from 8.00 to 7.00. Please report back whether this work - or create a new patchtracker item with the vc7 projectfiles (keep in mind, that this have to be done for the game.vcproj and ref_gl.vcproj, too)
currently sound is using sdl layer - but this is broken. on the long run the directx code should be "removed" (will stay, but permantly deactivated) - due to portability reasons. There is also a mingw quake2 version available on sourceforge.net which uses win32 api calls to produce sound. no directx. this is imaginable, too. but - someone with a win system have to do this to test it back.
we will change the sound layout to dynamic libs on the long run, which means you can exchange the libs as you want. (like for opengl-renderer)