Regarding the CD audio error - Windows 95 version ("the game can't play 16-bit stereo audio so it will revert to 8-bit, blah blah, too long command: time range, something something") :
after few tests I'm betting this to be OS related problem. This error will occur if a certain event interrupts musical background (like picking up treasure), as the game wants to get back to a certain point of the audio track and fails. This seems to happen on Windows XP. It doesn't seem hardware related (the same drive plays fine if we switch to Win98), neither this is the case of "image mounted vs. CD in drive".
The answer is to play in old Win98 to get CD audio.