I had looked into using smartdrv, but it doesn't seem to work the way the Arena manual explains it in win98. For example there is no smartdrv.sys in my Windows install - not sure where to find it. There is a smartdrv.exe but that only works in dos-mode, and I'm not sure how to use it on a boot floppy.
Here's what I did - I took Music's advice about savegames, and I backed up the whole folder by renaming it to arena_cd.old, then re-installed, from the emulated drive (F:) and renamed the new folder arenacd.tmp - then changed the arena_cd.old back to arena_cd. :) Then I changed the line in arena.bat from @E: (my cd-rom) to @F: (the alcohol drive)
I tried running the game directly from windows by simply double-clicking the arena.bat file in c:\arena_cd and while this often doesn't work, in this case, maybe the emulated drive helped windows keep track of things, because it loaded up it's own dos window and the sound was working just fine. At this point the problem is that the game usually freezes up quickly because of having not quite enough conventional memory (I have about 601k, but you should have 603 min. according to the manual) BUT I don't know whether it is due to the emulated drive but i've been playing for a while now and no freeze-ups.
If I do have any other problems I will try Hunter's suggestion and use subst.
and let you know how that goes.
Cheers u2