i have just realised i have the mirrored problem of you. i.e. i have no sound in the login screen (and in the lobby) but i have sound in the game tab !!
i have found that i have the same behavior in 1.2.0 and 1.2.1. in fact, it's if i have another application using sound when i launch mule.sh, it gives no sound. as soon as i quit that other application i have sound in the login screen. also it uses 100% cpu usage until i quit the other app using sound.
either it's a bug in openal or it's a serious misconfiguration of openal in planetmule. because it seems to use 2 different output system (oss and alsa) at the same tiime 
this will explain how you can have sound in the login screen and not in tab game whereas i have no sound in the login screen but some in the tab game.
try closing any software using sound when you launch mule. and report what happen, please ?
you could try this. but i doubt it will change anything
if you're using arts, it's that you're still using kde 3 ? which output do you use for arts ? oss or alsa ? if oss try alsa
Also try using directly alsa (or oss ,) by skipping the use of arts. it will work better. i remember i began to hate arts for its crashes and uninstalled it to use only alsa. (this could be configured in kde config panel sound). also arts is quite "old"